CFTC's New York injunction bid falters as circuit split widens

Judge Lorna G. Schofield heard oral arguments on September 14 in the Southern District of New York, and before the session was over she had already said what the CFTC's lawyer had not wanted to hear: why should this court grant what other courts have refused?

The question matters because the CFTC's entire theory rests on exclusivity. Jordan Minot, arguing for the Commission, told Schofield that sports event contracts are swaps under the Commodity Exchange Act, that Congress vested the CFTC with sole authority over them, and that New York's enforcement actions against Kalshi, Coinbase Financial Markets, and Gemini Titan must therefore stop. The logic is clean enough on paper. The problem is that federal courts have been reading the same statute and arriving at different places.

The Third Circuit has read event contracts as derivatives, sitting comfortably inside the CEA's reach. The Ninth Circuit, ruling on Kalshi's California case, held that sports contracts can simultaneously be derivatives and wagers — and that state gambling law reaches them anyway. That holding is now before the Supreme Court, with Crypto.com and Robinhood asking the justices to take the preemption question. The Court has not yet indicated whether it will.

Schofield's skepticism tracks directly onto that split. A preliminary injunction requires the moving party to show a likelihood of success on the merits. When circuit courts cannot agree on what the merits are, demonstrating likelihood becomes something close to impossible. The judge's question from the bench was not rhetorical. It was the legal standard, read aloud.

New York Attorney General Letitia James is seeking monetary penalties, not just platform exits. The AGA, which filed in opposition to the CFTC's injunction request, made the tax revenue argument explicit: New York collected $1.32 billion in sports-betting taxes in 2025 under a licensed framework that imposes age verification, advertising restrictions, and problem gambling obligations that prediction market platforms currently bypass. Forty-four state attorneys general have taken the same position at the federal level. That alignment is not a lobbying coalition. It is a jurisdictional argument with a long enforcement history behind it.

The CLARITY Act's cloture vote failed 49-50 on the same week Schofield heard arguments, leaving the legislative path closed until at least the 2027 session. That timing matters for the injunction analysis: the Commission argued partly that conflicting enforcement would create uncertainty as related cases moved through the courts. With Congress no longer moving, the cases are the only track, and the courts are reading the same statute in ways that cannot both be right.

The consensus view in the prediction market space is that CFTC preemption holds — that Congress meant what it wrote in the Commodity Exchange Act, and that state gambling laws cannot reach federally designated contracts. I think that reads the statute through the outcome it wants. The CEA's exclusive jurisdiction clause was written for financial derivatives traded on designated contract markets, not for contracts whose economic function is indistinguishable from a sports wager. Schofield's question from the bench reflects exactly that tension, and the Ninth Circuit has already shown one way it resolves.