A federal judge has temporarily blocked Minnesota from enforcing a first-of-its-kind law that would have prohibited prediction markets in the state.

The latest decision hands a temporary legal victory to Kalshi, Polymarket, and the US Commodity Futures Trading Commission (CFTC).

Early Court Victory

According to Reuters, US District Judge Katherine Menendez granted a preliminary injunction after finding that the state law, which was due to take effect on Saturday, is likely preempted by the federal Commodity Exchange Act. The ruling allows Kalshi and Polymarket to continue offering event contracts to users in Minnesota while the lawsuit proceeds.

The dispute began after Governor Tim Walz signed legislation in May that made it a criminal offense to operate, host, or promote prediction markets in the state. Unlike other states that have challenged companies such as Kalshi by arguing they were operating unlicensed gambling businesses under existing gaming laws, Minnesota enacted a law that aimed specifically at prediction markets.

Judge Menendez said several event contracts offered by Kalshi and Polymarket likely qualify as “swaps” under federal law. Because the CFTC regulates swaps, she found that federal law is likely to override Minnesota’s ban on prediction markets. Despite this, she noted that the court could narrow the injunction later if it determines that not every event contract listed on the platforms falls within that definition.

For now, however, she said preserving the status quo is appropriate while the court fully considers the merits of the case.

The decision was welcomed by both platforms. A spokesperson for Kalshi, Elisabeth Diana, for one, said the ruling confirms that states cannot prohibit activities outside their jurisdiction. Meanwhile, Minnesota Attorney General Keith Ellison said the state disagrees with the decision and will continue defending the law while arguing,

“Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities.”

Compliance and Legal Battles

The latest ruling comes as Kalshi continues to face legal restrictions in Massachusetts, Michigan, Nevada and Washington. Earlier this year, the company also stepped up enforcement of its own trading rules.

In April, it suspended three US political candidates after finding they had traded on contracts tied to elections in which they were running. The platform described the activity as political insider trading and said it violated its CFTC-approved rules. Minnesota State Senator Matt Klein and Texas candidate Ezekiel Enriquez each placed trades worth less than $100 on their own races and accepted fines and five-year suspensions.

Virginia candidate Mark Moran received a larger fine and a five-year ban after making multiple trades and refusing to settle. Moran said he placed the bets to test Kalshi’s enforcement process.

A month later, federal prosecutors charged Google software engineer Michele Spagnuolo, known online as “AlphaRaccoon,” with allegedly using confidential Google search data to make about $1.2 million by trading on Polymarket. Authorities said he accessed nonpublic “Year in Search 2025” rankings before they were released and placed bets on a related prediction market.

Source: CryptoPotato