NY Federal Judge Weighs CFTC Exclusive Jurisdiction Over Prediction Markets

A federal judge on Monday (Sept. 14) heard oral arguments from the Commodity Futures Trading Commission (CFTC) on why the prediction markets it regulates should not be subject to New York state gaming laws.

In April, New York Attorney General Letitia James sued Coinbase and Gemini on allegations that the prediction markets run illegal gambling platforms. James is seeking the recovery of $3.4 billion in alleged illegal profits, civil penalties, and treble customer restitution.

The CFTC filed a motion to dismiss the state’s claims against its licensed prediction markets.

Coinbase and Gemini are prediction markets that allow users to buy and sell shares of future outcomes. They operate with Designated Contract Market licenses from the CFTC.  

Monday Debate

During Monday’s oral arguments, Judge Lorna G. Schofield of the U.S. District Court for the Southern District of New York pressed CFTC counsel on why an injunction is warranted when other federal courts have denied similar petitions.

CFTC attorneys argued that event contracts are derivative instruments structured as swaps, giving the agency exclusive regulatory authority under the CEA.

State attorneys countered that many event contracts offered on Coinbase and Gemini are not financial derivatives, but unapproved gambling. The state contends contracts tied to sporting events constitute wagers that fall under the sole jurisdiction of the New York State Gaming Commission.

CFTC counsel told Schofield that without federal court intervention, New York will continue its “attempts to subvert federal law” and undermine the agency’s “exclusive jurisdiction to regulate event contract swaps conferred on the CFTC by Congress.”

Schofield did not issue a ruling from the bench following Monday’s hearing.

AGA Memorandum

Schofield permitted the American Gaming Association (AGA) to submit an amicus memorandum opposing the CFTC’s injunction request. The commercial casino trade group maintains that sports-based prediction markets are simply unregulated sportsbooks.

“According to the CFTC, sports event contracts on prediction markets are derivatives contracts governed exclusively by the CEA. But as is obvious to everyone who visits a prediction market, these contracts are hardly novel financial instruments—they are sports bets,” the AGA argued in its Sept. 7 filing.

The ruling could set a major legal precedent, determining whether state gaming regulators can enforce local gambling laws against federally registered event contracts or if the CFTC holds sole oversight.