A federal judge in Minnesota has granted a preliminary injunction, temporarily halting the state's new ban on prediction markets. The court ruled that the state law, which criminalizes prediction market operations, may conflict with the U.S. Federal Commodity Exchange Act.
State law may be excluded by federal law
The ruling was made by Judge Katherine Menendez of the U.S. District Court for the District of Minnesota. She stated that Kalshi, Polymarket, and the U.S. Commodity Futures Trading Commission (CFTC) likely demonstrated during the substantive hearing that state law had been excluded from application by federal law.
The crux of the case is whether event contracts in the prediction market fall under the definition of "swaps" in the Commodity Exchange Act. If they do, the relevant regulatory authority will primarily lie at the federal level, rather than being solely restricted by state governments.
Kalshi and Polymarket sue Minnesota
Minnesota previously passed a law prohibiting forecasting market operators from offering such products within the state and criminalizing such operations. Subsequently, Kalshi, Polymarket, and the CFTC jointly filed a lawsuit, arguing that the state law infringed upon the CFTC's regulatory authority over these products.
In its ruling, the judge wrote that the plaintiff had preliminarily demonstrated that its claim of "express exclusion" was highly likely to succeed, at least in relation to many of the trading contracts listed on the Kalshi and Polymarket US platforms.
The injunction will remain in effect until the final judgment of the case.
The court also held that Kalshi and Polymarket would face "irreparable harm" if the law was not suspended. Therefore, the preliminary injunction will remain in effect until the court makes a final ruling on the substantive issues of the case.
However, the judge also noted that not all forecasting contracts necessarily fall under the protection of federal law. She cited as an example some forecasts surrounding the outcome of the television show "Love Island" as potentially falling closer to what Minnesota law seeks to restrict. But at this stage, it is difficult for the court to design an injunction specifically targeting these particular contracts.
This means that Minnesota cannot, under this new law, completely block Kalshi and Polymarket from offering related forecasting market products until the case moves to the next stage.
