The Commodity Futures Trading Commission (CFTC) has sued Kentucky, accusing the state of using enforcement actions and fees to push out federally regulated contract markets.

The case adds Kentucky to a widening list of states clashing with the agency over prediction markets and event contracts.

Kentucky Escalates State Pressure on Platforms

The friction traces back to earlier in June. Kentucky Attorney General Russell Coleman filed lawsuits against Kalshi, Polymarket, and VGW. The action accused the platforms of allegedly running unlicensed, illegal sports betting and gambling across the state.

The CFTC said the actions seek heavy monetary penalties against the targeted operators. Furthermore, Kentucky has also passed a bill that would impose an excise tax on prediction market operators. 

“On and after January 1, 2027, an excise tax is hereby imposed on a prediction market operator at the rate of fourteen and one-quarter percent (14.25%) of the prediction market operator’s transaction fees. The accrual method of accounting shall be used for purposes of calculating the amount of tax owed by the prediction market operator under this subsection,” the bill reads.

According to the CFTC, the measure is designed to pressure platforms into leaving Kentucky entirely. The regulator argues that these efforts obstruct the “Congress’ decision to federally preempt state law.”

CFTC Chairman Defends Federal Authority

Chairman Michael S. Selig framed the suit as part of a broader defense of the agency’s exclusive jurisdiction.

“Kentucky is the latest state attempting to shut down federally-regulated event contracts… the CFTC is firmly committed to maintaining its exclusive jurisdiction over prediction markets, and today’s lawsuit against Kentucky is yet another example of the Commission protecting its federal interests,” he said.

Kentucky is not an isolated case. The CFTC has also initiated legal proceedings against Minnesota, Illinois, Rhode Island, and more.

The outcome of these overlapping disputes may determine whether states can restrict event contracts that the CFTC considers solely within its remit.

Source: BeInCrypto