Federal judge casts doubt on CFTC authority over New York gambling law

Judge Lorna G. Schofield sat in the Southern District of New York on September 14 and asked the question that the CFTC's entire litigation strategy had been designed to avoid: why should this court grant an injunction when other judges have declined to do the same thing?

The CFTC's lawyer, Jordan Minot, had come to argue that sports event contracts are swaps under the Commodity Exchange Act, that Congress granted the Commission exclusive authority over such products, and that New York had no business enforcing its gambling laws against federally regulated platforms. These are not frivolous arguments. The Third Circuit has been receptive to the preemption logic. The problem is that the Ninth Circuit has not, and Schofield appears to have read both.

The preliminary injunction standard requires the movant to show a likelihood of success on the merits. Not certainty — likelihood. But Schofield's questions from the bench suggest she is not persuaded the CFTC can meet even that threshold when the circuit courts are reading the same statute in opposite directions. A split appellate record is not a foundation for a preliminary injunction. It is, if anything, the argument against one.

What makes the Commission's position harder is what has accumulated around it. New York Attorney General Letitia James has already moved against Coinbase Financial Markets, Gemini Titan, and Kalshi — treating their event contracts as unlicensed gambling and seeking monetary penalties. The American Gaming Association filed against the injunction, citing the $1.32 billion in sports-betting tax revenue New York generated in 2025 and pointing to the licensing, taxation, and responsible-gambling requirements that prediction market platforms currently do not face. Forty-four state attorneys general have taken the same side. That is not a coalition the Commission typically faces when it walks into a federal courthouse.

The Senate cloture vote on the CLARITY Act failed 49 to 50 the same week. The bill, which would have clarified the boundary between CFTC and SEC jurisdiction and reduced the regulatory exposure prediction market operators face under state law, is not coming back before the midterms. Whatever legal shelter the platforms were expecting from Congress is not arriving.

I have worked enforcement actions where the agency's authority looked solid on paper and collapsed at the hearing because the underlying statutory question had not been resolved. The Commission is not wrong that event contracts look like derivatives in some respects — the economic function, the counterparty structure, the price-discovery mechanism. But "looks like" and "is" are different legal conclusions, and when a court sees two circuits reaching opposite answers on the same question, it is not going to resolve that conflict on a preliminary motion. Schofield's skepticism is not a ruling, but it is a signal about what the merits phase will require the CFTC to produce.

The standard that governs this motion is whether the moving party has demonstrated a likelihood of success on the merits, a risk of irreparable harm, and that the balance of equities favors relief. On the current appellate record, with the Supreme Court not yet having accepted a case and the Ninth Circuit's ruling standing, the first element is the one the Commission cannot comfortably satisfy.