A federal judge has temporarily halted Minnesota’s law banning prediction markets, citing concerns that the state legislation may be preempted by federal law. US District Judge Katherine Menendez granted a preliminary injunction shortly before the law was scheduled to take effect on Saturday, allowing platforms such as Kalshi and Polymarket to continue offering event contracts to users in Minnesota while the legal challenge proceeds.
The judge’s decision hinges on the finding that the Minnesota law is likely preempted by the federal Commodity Exchange Act. Judge Menendez indicated that many of the event contracts offered by Kalshi and Polymarket likely fall under the definition of “swaps,” a category of financial instruments regulated by the US Commodity Futures Trading Commission (CFTC). This suggests that federal regulatory authority may supersede the state’s prohibition.
This preliminary injunction effectively preserves the status quo, allowing prediction market operations to continue in Minnesota for the time being. The state had passed legislation in May, signed by Governor Tim Walz, which criminalized the operation, hosting, or promotion of prediction markets within its borders.
Minnesota Attorney General Keith Ellison has stated that the state disagrees with the federal court’s decision and remains committed to defending its law. The broader legal landscape for prediction markets continues to be characterized by uncertainty and ongoing regulatory challenges across multiple states.
For example, Kalshi currently operates under legal restrictions in Massachusetts, Michigan, Nevada, and Washington. The platform has previously suspended trading for individuals involved in contracts tied to their own elections. In one instance, Minnesota State Senator Matt Klein and Texas candidate Ezekiel Enriquez reportedly accepted fines and five-year suspensions for trading less than $100 on their own races. Virginia candidate Mark Moran faced a more substantial fine and a five-year ban after engaging in multiple trades and refusing to settle.
Beyond election-related trading, prediction markets have also been at the center of allegations of insider trading. Federal prosecutors have charged Google software engineer Michele Spagnuolo with allegedly leveraging confidential Google search data to generate approximately $1.2 million through trades on Polymarket. Authorities claim Spagnuolo accessed nonpublic data related to “Year in Search 2025” rankings before their official release and subsequently placed bets on a corresponding prediction market.
Uncertainty persists regarding the ultimate resolution of the Minnesota lawsuit and whether all event contracts offered by platforms like Kalshi and Polymarket will be definitively classified as federal “swaps.” The judge’s ruling underscores the ongoing tension between state-level regulatory ambitions and the reach of federal oversight in the evolving market for prediction contracts.
Why This Matters
The materials describe a narrow update: US District Judge Katherine Menendez granted a preliminary injunction, temporarily blocking Minnesota’s law that would have banned prediction markets. Whether every event contract listed on Kalshi and Polymarket platforms falls within the definition of ‘swaps’ under federal law.
Broader Context
Source materials place the factual news in this context: Unlike other states that have challenged companies such as Kalshi by arguing they were operating unlicensed gambling businesses under existing gaming laws, Minnesota enacted a law that aimed specifically at prediction markets.
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