A federal judge blocked Minnesota’s prediction market ban on Monday, handing Kalshi, Polymarket US, and the Commodity Futures Trading Commission (CFTC) a preliminary injunction days before the law’s August 1 effective date.

US District Judge Katherine Menendez found the Commodity Exchange Act (CEA) likely preempts the statute. Her order bars enforcement against CFTC-registered designated contract markets (DCMs) until a final merits decision.

Why the Court Found Federal Law Likely Preempts Minnesota’s Statute

Menendez issued the order in 3 related cases against Minnesota, Attorney General Keith Ellison, Governor Tim Walz, and other state officials. Kalshi, Polymarket US, and the federal government each won their injunction motions.

Minnesota’s law, Minn. Stat. § 609.7615, makes operating or creating a prediction market a felony. It covers sports, elections, legal actions, pop culture, and statements by specific people. Advertising and providing data services also carry criminal penalties.

The CFTC filed its lawsuit in May, after Walz signed the legislation. Chairman Michael Selig argued the ban would criminalize weather contracts that Minnesota farmers use for hedging.

Menendez ruled that the CEA gives the CFTC exclusive jurisdiction over swaps traded on DCMs. She found many contracts on both platforms, including election and geopolitical markets, that likely qualify as swaps. Consequently, Minnesota likely cannot regulate them.

“Kalshi and Polymarket US are designated contract markets, so the CFTC has exclusive jurisdiction to regulate transactions involving those swaps,” the order read.

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Judge Signals Final Relief Could Be Narrower

However, Menendez stressed that not every event contract fits the swap definition. She pointed to Kalshi markets on Love Island USA winners and World Cup announcer mentions as likely failing the test.

Both sides briefed the case as all-or-nothing, she noted. That left the court little guidance for crafting a narrower remedy, so she froze the entire statute for now.

Irreparable harm weighed heavily in the decision. Kalshi reported over 90,000 verified Minnesota users as of May 26, with millions of dollars in open positions. Sovereign immunity would bar any recovery of damages if enforcement proceeded.

The court did not address the First Amendment claims raised by both exchanges. Those questions, along with the implied preemption issue, now await a full merits ruling.

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Source: BeInCrypto