Coinbase Urges Wisconsin to Defer to CFTC After Lawsuit

Coinbase chief legal officer Paul Grewal urged Wisconsin to defer to federal oversight by the Commodity Futures Trading Commission after the Wisconsin Department of Justice filed suit against Coinbase and four other prediction market platforms. The state alleges sports-related event contracts offered by the firms amount to illegal gambling and seeks preliminary and permanent injunctions plus a declaration of public nuisance. The defendants named in the complaint are Kalshi, Robinhood, Polymarket and Crypto.com.

Grewal relied on a recent U.S. Court of Appeals for the Third Circuit decision in KalshiEX LLC v. Flaherty, which held that the Commodity Exchange Act can preempt state gambling laws for sports-related event contracts traded on CFTC-registered designated contract markets. He wrote on X, “Congress was clear — consumers deserve uniform, federal oversight over derivatives markets,” adding that “Wisconsin should accept clear and consistent CFTC oversight of prediction markets — just as Congress intended.”

Wisconsin Attorney General Josh Kaul accused the companies of disguising sports betting as event contracts and pointed to marketing and fee structures as evidence. Kaul’s office cited an Instagram ad from Kalshi calling itself “The First Nationwide Legal Sports Betting Platform” and noted that the platforms collect transaction fees on each contract. Kaul wrote that “thinly disguising unlawful conduct doesn’t make it lawful.”

The CFTC has filed its own cases to defend federal preemption. On April 2 the agency sued Connecticut, Arizona and Illinois, asserting that federal law bars those states from enforcing their gambling prohibitions against covered prediction markets. CFTC Chairman Michael Selig pledged the agency will “continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators.”

Other states have brought separate actions. Tennessee and Arizona have pursued lawsuits aimed at limiting Kalshi’s offerings, and Arizona filed a 20-count criminal information against Kalshi. More than 34 states have filed amicus briefs asserting state regulatory authority, and a bipartisan group of more than 20 senators has asked the CFTC to refrain from intervening in prediction market litigation.

The dispute is moving through multiple federal courts. The Ninth Circuit heard oral arguments on April 16 in cases by Nevada against Kalshi, Robinhood and Crypto.com. If the Ninth Circuit reaches a different conclusion than the Third Circuit, the courts could be split and the Supreme Court may be asked to resolve whether the Commodity Exchange Act preempts state gambling laws for event contracts traded on CFTC-regulated markets. The outcome will determine how prediction market platforms structure products and which regulator has final authority; the cases remain active and likely will proceed through further appeals.