The conflict between the federal regulator and state authorities has reached a critical point. The U.S. Commodity Futures Trading Commission (CFTC) urgently intervened in the situation surrounding the prediction platform Kalshi, suspending its internal rule on forced liquidation of positions. The regulator directly ordered the platform to complete settlements on Michigan residents' trades in the standard manner, effectively overturning the local court's requirement to cancel these contracts.
Double Blow: State Court vs. Federal Law
In March 2026, Michigan Attorney General Dana Nessel filed a lawsuit, accusing Kalshi of providing unlicensed sports betting disguised as trading contracts on event outcomes. On June 29, Ingham County Judge Rosemarie Aquilina issued a temporary injunction: the platform was prohibited from offering, matching, and settling sports contracts for users in Michigan. The penalty for violation was $120,000 per day, and starting August 13, it was set to increase to $500,000 per day. The court later clarified that certain trades must not just be frozen, but canceled and funds returned.
Emergency Rule and CFTC Response
Caught between a rock and a hard place, Kalshi filed an emergency rule with the CFTC on July 12, providing for the forced liquidation of affected positions at current market value. However, on July 14, the regulator suspended this rule for 90 days, stating that Kalshi's contracts fall under the federal regulatory regime, and no individual state can dictate special conditions for its residents to the platform. CFTC Chairman Michael Selig called the cancellation of already concluded trades "an unprecedented step that threatens a cascading effect on the entire market."
Jurisdictional Paradox
The situation has exposed a fundamental problem: the platform has become a hostage to conflicting requirements. Kalshi's Head of Compliance Robert Deno admitted that the company had already canceled trades before the CFTC order was issued, as it "had no choice." Now the platform is in limbo: the federal regulator demands one thing, while the state court demands another. The procedure includes a 30-day public comment period, after which the CFTC must make a final decision.
This precedent creates a dangerous trend: if federal and local regulators continue to issue conflicting directives, prediction market participants risk falling into a zone of legal uncertainty. I should note that Kentucky has already filed similar lawsuits against Kalshi and Polymarket. In my professional opinion, without a clear legislative delineation of powers between states and the CFTC, we will see more than one such conflict, which will ultimately harm investors and the liquidity of prediction markets.