Wisconsin’s Department of Justice initiated legal action Thursday, April 23, filing lawsuits against five prominent prediction market platforms and their affiliates: Kalshi, Robinhood, Coinbase, Polymarket, and Crypto.com. The state alleges these companies are operating illegal sports betting operations within Wisconsin, thinly disguising them as event contracts. Wisconsin Attorney General Josh Kaul stated in a press release, “Thinly disguising unlawful conduct doesn’t make it lawful. These companies’ alleged facilitation of sports betting in Wisconsin should be shut down.”
Allegations of Unlawful Gambling Activity
The lawsuits assert that these platforms flout Wisconsin’s stringent laws, where sports betting and other forms of commercial gambling are largely prohibited, save for limited exceptions. According to the Wisconsin Department of Justice, the defendants engage in unlawful gambling activity by collecting a fee on the “bets” they facilitate, despite presenting them as event contracts. This alleged practice, the state contends, constitutes a deliberate circumvention of established gambling statutes. Wisconsin seeks a judicial declaration that the companies have violated state law by creating a public nuisance, alongside preliminary and permanent injunctions to prevent them from facilitating sports-related event contracts to customers within the state.
Industry Responses and Federal Jurisdiction Claims
In response to the legal challenge, several defendants articulated their positions, largely centering on claims of federal oversight. Kalshi, in an emailed statement to PYMNTS, asserted its status as “a regulated, nationwide exchange for real-world events,” emphasizing its subjection to “exclusive federal jurisdiction.” The company differentiated its offerings, stating they are “very different from what state-regulated sportsbooks and casinos offer their customers,” and expressed confidence in its “legal arguments.”
Robinhood echoed a similar stance, highlighting its compliance with federal regulations. A spokesperson informed PYMNTS that “Robinhood’s event contracts are federally regulated by the CFTC [Commodity Futures Trading Commission] and offered through Robinhood Derivatives, LLC, a CFTC-registered entity.” This framework, they contend, allows “retail customers to access prediction markets in a safe, compliant and regulated manner.” Robinhood also indicated its intention to “defend ourselves against these claims.”
Coinbase’s Chief Legal Officer, Paul Grewal, took to LinkedIn, framing the situation within a broader federal regulatory context. Grewal highlighted Congress’s clear intent for federal oversight over derivatives markets, citing a Third Circuit holding that state actions against prediction markets create the “kind of patchwork that Congress replaced with its creation of the CFTC.” He urged, “Wisconsin should accept clear and consistent CFTC oversight of prediction markets — just as Congress intended.” Polymarket and Crypto.com did not immediately provide comments to PYMNTS regarding the lawsuits.
Broader Regulatory Context
The legal confrontation in Wisconsin is not an isolated incident but rather part of a broader jurisdictional dispute concerning prediction markets. The Commodity Futures Trading Commission (CFTC) itself initiated lawsuits on April 2 against Arizona, Connecticut, and Illinois. The federal regulator alleged that these states had taken actions that intruded upon the CFTC’s “exclusive jurisdiction to regulate prediction markets.” This federal intervention underscores the complex and contested regulatory landscape surrounding these financial instruments.
The Wisconsin lawsuits against Kalshi, Robinhood, Coinbase, Polymarket, and Crypto.com highlight a growing tension between state-level gambling prohibitions and the burgeoning prediction market industry, which often claims federal regulatory oversight. This legal battle, underscored by the CFTC’s own actions against other states, emphasizes the complex and contested regulatory landscape. As these platforms face state challenges, the outcome of these cases could significantly shape the operational framework for event contracts, clarifying the boundaries of state versus federal jurisdiction in the evolving financial derivatives space.
