Judge Blocks Minnesota Prediction Market Ban

Judge Blocks Minnesota’s Prediction Market Ban

A federal judge has halted Minnesota’s attempt to criminalize prediction markets, granting a preliminary injunction to Kalshi, Polymarket, and the Commodity Futures Trading Commission (CFTC) just days before the state law was set to take effect. U.S. District Judge Katherine Menendez issued the order Monday, finding that the plaintiffs were likely to prevail on claims of federal preemption and would suffer irreparable harm if the law were enforced.

The statute, SF 3432, was slated to become law on Saturday. The judge’s 44-page ruling specifically bars enforcement against trading platforms already registered with the CFTC as designated contract markets. The injunction will remain in place pending a final decision on the merits of the case.

Preemption Hinges on “Swap” Definition

At the heart of the legal challenge is whether the trades offered on prediction markets qualify as “swaps” under the Commodity Exchange Act (CEA). Judge Menendez determined that contracts related to events with “clear potential economic, financial, or commercial consequences” – such as Senate races, World Cup winners, or the reopening of the Strait of Hormuz – would likely meet this definition. However, she indicated that markets focused on less consequential events, like the winner of “Love Island USA” or mid-match announcer comments, might not.

This distinction is crucial given the nature of the legal challenge. The CFTC’s lawsuit is a facial challenge, meaning it must demonstrate that the law is invalid in all circumstances. While Judge Menendez acknowledged that the Minnesota statute “may not be preempted in all its applications,” she issued the injunction to maintain the status quo, criticizing both sides for presenting the dispute as an “all-or-nothing proposition.” She suggested that any permanent relief granted could be “much narrower.”

State Disagrees with Ruling

Minnesota’s Attorney General, Keith Ellison, stated that the state “respectfully disagree[s]” with the court’s interpretation. In a memorandum, Ellison argued that the prediction market platforms could comply with federal requirements while still restricting their offerings within Minnesota. He expressed concern that the court’s decision “allows predatory gambling apps to proliferate.”

The CFTC has initiated similar legal actions against other states, including Illinois, Arizona, Connecticut, and Wisconsin. In Minnesota, both the Department of Justice and the CFTC filed their challenges within hours of the bill’s passage, with Kalshi following suit days later.

The judge’s order arrived just one day before a self-imposed deadline by the CFTC. In a letter dated July 24, the agency informed Judge Menendez that if a ruling or stay was not issued by the close of business Tuesday, it would consider its motion “constructively denied” and seek interim relief from the Eighth Circuit Court of Appeals. Kalshi and Polymarket indicated they would pursue the same course of action.