The Feds Are Suing 4 States Over Prediction Markets. Here's Why California Isn't One

On this page · 8

1. Court update: where the legal fight stands (as of September 30, 2026)
2. Which states is the federal government suing?
3. Why is the federal government doing this?
4. Why isn't California on the list?
5. What happens if the federal government loses?
6. What about the four sued states?
7. How should California traders think about this?
8. Where to read more

Archived report: written in April 2026. Prices and details are as of then, not live.

The federal government did something rare in late April 2026: it sued four states at once. New York, Connecticut, Arizona, and Illinois are all defendants in cases brought by the DOJ and the CFTC (opens in a new tab), alleging the states have illegally tried to regulate Kalshi (opens in a new tab) and Polymarket (opens in a new tab). California is not on the list. And that absence is the story.

Court update: where the legal fight stands (as of September 30, 2026)

The legal status of sports event contracts is not settled. Federal appeals courts are split on whether states can apply their gambling laws to them. All three rulings below were made at the preliminary-injunction stage, not as final judgments.

• Ninth Circuit (August 28, 2026, Nevada): ruled at the preliminary stage that Kalshi is unlikely to show federal law blocks Nevada's gambling laws for its sports contracts, and ruled against Robinhood and Crypto.com (opens in a new tab) the same day. Ninth Circuit rulings bind federal courts in California. Kalshi has asked for a rehearing. Opinion (opens in a new tab)
• Sixth Circuit (September 25, 2026, Ohio and Tennessee): reached the same preliminary conclusion. Opinion (opens in a new tab)
• Third Circuit (April 6, 2026, New Jersey): ruled 2–1 the other way, finding Kalshi likely to show that federal law preempts New Jersey's gambling laws. Opinion (opens in a new tab)
• Supreme Court: New Jersey (No. 26-299), Robinhood (No. 26-338) and Crypto.com (No. 26-344) have filed petitions. None has been granted yet.
• California tribal lands: on September 16, 2026 the Ninth Circuit found California tribes likely to succeed in their claim against Kalshi's sports contracts on tribal lands (Blue Lake Rancheria v. Kalshi). Bloomberg Tax reported on September 24 that Kalshi has since disabled its markets on three tribes' lands. Opinion (opens in a new tab)

What this means for you: as of September 30, 2026 the platforms still accept California users, and contracts on politics, economics, weather and culture are not at issue in these cases. Sports contracts carry the most legal uncertainty and could be restricted if the courts or regulators act. This is general information, not legal advice.

Here's what the lawsuits say, why California is sitting them out, and what it means for the access California prediction-market traders enjoy today.

Which states is the federal government suing?

The DOJ and CFTC jointly filed lawsuits against New York, Connecticut, Arizona, and Illinois between March and April 2026, asking federal courts to block state efforts to regulate event-contract platforms.

The flagship case is *United States and CFTC v. New York* (Case No. 1:26-cv-3404, S.D.N.Y.), filed April 24, 2026. The complaint argues the New York State Gaming Commission overstepped when it issued cease-and-desist orders to Kalshi for offering sports contracts to New York residents.

The CT, AZ, and IL complaints follow the same template: the state regulators tried to treat event contracts as gambling, the federal government argues that the Commodity Exchange Act (opens in a new tab) gives the CFTC exclusive jurisdiction, and the states' actions are therefore preempted.

Why is the federal government doing this?

Two reasons. First, CFTC Chairman Michael Selig has been explicit since taking over in January 2026 that the agency will 'exercise its exclusive jurisdiction' over prediction markets. Second, if states are allowed to set their own patchwork rules, the entire DCM (Designated Contract Market) framework breaks. Kalshi can't operate a national exchange if every state can pull contracts independently.

There's also a political read: the new CFTC is signaling to Kalshi, Polymarket, and the broader event-contract industry that they have a federal partner, not a federal adversary. That's a 180-degree turn from the previous administration.

If the federal government wins these cases, California's posture, letting federal jurisdiction stand, becomes the national default.

Why isn't California on the list?

Because California has not taken enforcement action. Attorney General Rob Bonta has not sued the platforms or sent them cease-and-desist letters, according to press reports. His office has, however, joined multistate court briefs backing other states' authority over sports event contracts, seven times by June 2026 (press release (opens in a new tab)).

Two factors help explain the lack of enforcement. First, California's two failed sports-betting ballot measures in 2022 made clear the state has no near-term path to a regulated sports-betting framework: meaning there's no in-state industry to protect from out-of-state competition. Second, prediction markets are popular enough in California (and especially in Los Angeles, where Kalshi has hosted multiple in-person events) that aggressive enforcement would be politically costly.

The result: California traders enjoy the same federal access the four sued states *want* to restrict, with no state-level pushback.

What happens if the federal government loses?

Unlikely, but worth considering. If a federal court ruled that the CFTC does *not* have exclusive jurisdiction over event contracts, the floor opens to a state-by-state patchwork.

In that scenario, California's position actually becomes more important. The state would have to decide affirmatively whether to allow, restrict, or ban event-contract platforms. Given the political dynamics described above, the most likely outcome is California permits continued operation, possibly with a notification-only registration regime.

The worst-case scenario for California traders is a federal loss followed by a hostile state Attorney General two or three years from now. That's a low-probability path, but it's the one to watch.

What about the four sued states?

If you're a California resident with friends or family in NY, CT, AZ, or IL, here's the practical situation right now:

• New York: Kalshi continues to operate while the case is pending. The state's cease-and-desist remains formally in effect but isn't being enforced against retail users.
• Connecticut, Arizona, Illinois: Same posture. Platforms are operational, state actions are paused pending federal court rulings.
• Geofencing risk: If any of the four states wins an emergency injunction, platforms may temporarily geofence that state. Use a VPN to evade is illegal under the platforms' terms of service and could result in account closure.

How should California traders think about this?

Three takeaways:

Your access is uniquely protected. The combination of federal CFTC backing plus zero state opposition makes California one of the most stable prediction-market jurisdictions in the country. That's a meaningful edge versus residents of the four sued states, who face nonzero geofence risk.

Don't celebrate too loudly. Visible state-level opposition is what triggers federal action and political attention. The quieter California stays, the longer the current setup lasts. Practically, that means keep operating with normal accounts on Kalshi, Polymarket, and the others.

Watch the late-summer rulemaking. The CFTC's expected fall 2026 rulemaking will likely include carveouts and restrictions that affect what's tradable. The federalism fight is only one of two big regulatory stories this year. The other is what new contracts get blessed or banned.

Where to read more

For the broader regulatory backdrop, see our CFTC advisory explainer. For California-specific context, our California prediction markets guide covers the state legal landscape in depth.

Trade responsibly: 1-800-GAMBLER or ncpgambling.org (opens in a new tab).

Frequently asked questions

Which states is the federal government suing?

New York, Connecticut, Arizona, and Illinois. The flagship case is United States and CFTC v. New York (Case No. 1:26-cv-3404, S.D.N.Y.), filed April 24, 2026, with parallel cases against the other three states filed in March and April.

Why isn't California on the list?

Because California's Attorney General has not taken enforcement action against prediction markets. Two factors explain this: California's two failed sports-betting ballot measures in 2022 mean there's no in-state industry to protect from out-of-state competition, and prediction markets are politically popular in California. Especially in Los Angeles, where Kalshi has hosted in-person events.

What are the federal lawsuits actually arguing?

That the Commodity Exchange Act gives the CFTC exclusive jurisdiction over event-contract platforms, and that state regulators (including state gaming commissions) are preempted from imposing their own rules on Kalshi, Polymarket, and similar Designated Contract Markets.

Are Kalshi and Polymarket still operating in the sued states?

Yes, while the cases are pending. State cease-and-desist orders remain formally in effect but aren't being actively enforced against retail users. There is some geofencing risk if a state wins an emergency injunction.

Could California join the lawsuits later?

It's possible but unlikely under the current state administration. The Bonta AG office has signaled no interest in enforcement, and California's political dynamics around gambling make aggressive action politically costly.

What if the federal government loses these cases?

Unlikely, but if it happened, it would open the door to state-by-state regulation. California would then have to decide affirmatively whether to allow, restrict, or ban prediction markets. The most likely outcome would be continued operation, possibly with notification-only registration.

Should California traders change anything because of this?

No immediate action needed. California's combination of federal CFTC backing plus zero state opposition makes it one of the most stable jurisdictions in the country. Continue operating with normal accounts on Kalshi, Polymarket, and others.

Will California block access to Polymarket if federal lawsuits expand?

California has not indicated plans to block access to prediction markets. Since the state failed to pass sports betting legislation in 2022, event contracts remain in a distinct category from traditional gambling. Access depends on platform-level compliance with federal CFTC regulations rather than specific state-level litigation.

Does the lack of a lawsuit make California a safe haven for traders?

The absence of a lawsuit against California suggests the state is not currently challenging federal jurisdiction over event contracts. This provides a stable environment for residents to use platforms like Kalshi and OG. However, traders remain subject to federal tax laws and CFTC enforcement actions.