A federal judge has issued a preliminary injunction against Minnesota's recent law that would criminalize prediction market operations, affecting platforms like Kalshi and Polymarket. The ruling, delivered by Judge Katherine Menendez of the U.S. District Court for the District of Minnesota, highlighted probable conflicts between the state statute and the federal Commodity Exchange Act (CEA).
Federal Preemption of State Law
Kalshi, Polymarket, and the Commodity Futures Trading Commission (CFTC) challenged Minnesota's law after it was passed earlier this year. The state legislation sought to prohibit prediction market operators from offering their products within Minnesota, criminalizing certain event-based trade contracts. However, the federal judge found that these types of contracts, which are structured as "swaps" under the CEA, fall under the regulatory authority of the CFTC rather than the state.
Judge Menendez pointed out that the evidence presented suggests the companies and the CFTC are likely to prevail when the full case is heard. She wrote, "Plaintiffs have met their burden to show they are likely to succeed on the merits of their express-preemption claims," particularly regarding how Minnesota's law applies to trades listed on Kalshi’s and Polymarket US’s platforms.
Scope and Impact of the Injunction
While some prediction contracts, like bets on the outcome of reality shows such as "Love Island," may fall more directly within Minnesota's concerns, the judge noted that creating a targeted injunction for those specific contracts would prove difficult. Without the injunction, Kalshi and Polymarket risk irreversible damages due to the law's enforcement.
The preliminary block on Minnesota’s law will stay in effect until the court reaches a final decision. This pause allows platforms to continue offering their services in the state pending further legal examination.
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