Judge rejects Polymarket, Robinhood injunctions

U.S. District Judge Paul Maloney in Michigan denied preliminary injunctions sought by Polymarket and Robinhood, rejecting their bids to block state enforcement of gambling laws against prediction-market products. The judge issued two nearly identical opinions saying the sports-event contracts at issue likely do not meet the Dodd‑Frank Act’s definition of “swaps.”

Maloney said the statutory definition of swap is ambiguous and examined the law’s text and legislative history. He found the Dodd‑Frank amendments aimed at curbing risk in over‑the‑counter derivatives markets dominated by large financial institutions after the 2008 crisis, not regulating small wagers on sporting events. The judge wrote that Congress focused on systemic financial risk arising from complex derivatives markets and that the statute offers no clear sign lawmakers intended to treat sports wagers as federally regulated derivatives.

The opinion emphasized federalism principles, noting that courts should not assume Congress intended to displace traditional state authority over gambling without an explicit statement. Maloney cited the need to protect state powers over health, welfare and morals and concluded the plaintiffs had not shown a likelihood of success on the merits, so the motions for preliminary injunctions were denied.

The judge warned against an expansive reading of the term swap. He wrote that the plaintiffs’ interpretation would “sweep in any agreement or transaction dependent on anything happening that could conceivably result in any degree of financial consequence for anyone,” and could reach areas typically governed by state law, including contract, property and family law.

Maloney criticized a recent Third Circuit ruling that found sports-event contracts could qualify as swaps because sporting outcomes can have economic consequences. He said that decision did not define the limits of when an event is “associated with” economic effects and that using such a broad test could allow many events to be treated as federally regulated derivatives.

The opinions add to a split among federal judges in the Sixth Circuit over prediction markets. In February, a Tennessee judge granted a preliminary injunction for Kalshi, finding federal law likely preempted state enforcement. A separate Ohio judge later denied Kalshi relief, concluding the contracts probably fall outside the swap definition. The conflicting rulings have created a circuit split; the Sixth Circuit will hear oral arguments in Tennessee’s appeal on July 30.

Maloney’s decisions come about a week before he is scheduled to hear arguments in a related case in which Michigan seeks to remand a separate enforcement action against Kalshi to state court after the company removed it to federal court. Legal observers say the opinions may affect how regulators, operators and investors view the legal status of prediction markets and sports-event trading platforms.

Background: The dispute centers on whether prediction-market instruments that pay out based on the outcome of sporting events are “swaps” under the Commodity Exchange Act and therefore fall under the Commodity Futures Trading Commission’s exclusive jurisdiction after Dodd‑Frank expanded the swap definition. Operators including Kalshi, Polymarket and others have sought federal treatment to preempt state gambling laws, while states have enforced licensing and anti‑gambling statutes. A federal determination that such contracts are swaps could require trading to occur on regulated contract markets and change platform operations.