CFTC Files Federal Suit Against Rhode Island to Block Neronha Prosecution; Sixth State in Active Federal Preemption Litigation
The Commodity Futures Trading Commission filed a complaint in the US District Court for the District of Rhode Island on May 29, 2026, three days after Kalshi's own federal counter-suit, asking the court to declare Rhode Island's gambling laws preempted as applied to CFTC-licensed event contracts. Chairman Michael Selig framed the state lawsuits as an "onslaught" attempting a "power grab."
The Commodity Futures Trading Commission filed a federal complaint in the US District Court for the District of Rhode Island on May 29, 2026, asking the court to declare that Rhode Island's gambling statutes are preempted by the Commodity Exchange Act as applied to CFTC-licensed event contracts. The suit is paired with a motion for the United States and the CFTC to intervene in the existing federal case Kalshi filed three days earlier, when AG Peter F. Neronha launched parallel state-court actions against Kalshi and Polymarket over their sports event contracts. Rhode Island is the sixth state to enter active federal preemption litigation against the CFTC in 2026, alongside Arizona, Illinois, Connecticut, New York, and Minnesota.
CFTC Chairman Michael S. Selig's press release framed the broader state-by-state campaign in sharper language than the agency has used to date. "CFTC-registered exchanges have faced an onslaught of lawsuits seeking to limit Americans' access to event contracts and undermine the CFTC's sole regulatory jurisdiction over prediction markets. This power grab ignores the law and decades of precedent," Selig wrote. He continued: "Event contracts allow businesses and individuals to hedge event-driven risks, enable investors to manage portfolio exposure, and provide the public with information about the outcome of future events. These products are commodity derivatives and squarely within the CFTC's regulatory remit." The "onslaught" and "power grab" framing is a meaningful escalation from the agency's earlier filings, which leaned more on technical preemption arguments than political ones.
The substance of the CFTC complaint mirrors the agency's arguments in its Arizona suit, where Judge Michael Liburdi granted a preliminary injunction on May 5 finding three independent grounds for preemption (field, conflict, and impossibility). The Rhode Island filing argues that allowing the state to enforce its gambling laws against CFTC-licensed exchanges would "cripple the CFTC's ability to approve such exchanges and financial products for listing in the state of Rhode Island and, more broadly, would undermine the CFTC's mandate to promote responsible and fair competition in American derivatives markets." Counsel for Kalshi made the same point in the May 26 counter-suit: a state cannot ban derivatives that federal law authorizes any more than it could ban S&P 500 futures.
For Rhode Island residents the practical posture is unchanged: all platforms remain accessible while litigation proceeds, and there is no individual-trader liability under the statutes Neronha invoked. The procedural question that now matters most is which court reaches the merits first. The federal court has the cleaner path because the CFTC and Kalshi are both arguing the same legal question; the state court is sitting on Neronha's disgorgement demand. If the federal court grants a preliminary injunction in the next several weeks (consistent with the Arizona timeline of about thirty days from filing to ruling), the state action effectively halts. The CFTC's decision to file its own complaint rather than simply intervene in Kalshi's suit is a tell: the agency wants the issue on the federal docket under its own name, not as an industry-led question. That positioning matters if the case eventually reaches the First Circuit, which has historically applied a broad view of federal preemption in financial-regulation cases.
Operators mentioned in this article
Recent updates
Kalshi Suspends Congressional Candidate for Trading on Own Race — Senate Already Banned Members
Kalshi disclosed on August 31 that it suspended North Carolina congressional candidate Laurie Buckhout for three years and fined her $2,589 for trading on her own race — the first publicly known enforcement action against a candidate for prediction market insider trading. Kalshi said it found multiple politicians trading on races they were involved in, including former Congressman George Santos. The Senate had unanimously banned its members and staffers from prediction market trading on April 30. CNN published a major feature on September 24 documenting election officials' concerns about disinformation and insider trading risk from prediction markets as the midterms approach.
Pew Research: Prediction Market Volume Doubled May-July, Sports Now Largest Category
A Pew Research Center analysis published September 23 found that combined monthly trading volume on Kalshi and Polymarket more than doubled from May to July 2026 — rising from $26 billion in May to $53 billion in July — driven primarily by sports contracts. Sports is now the largest trading category on both platforms. During the FIFA World Cup in June and July, Kalshi's monthly sports volume reached $58 billion. Over the same period, Americans wagered roughly $40 billion at licensed sportsbooks — suggesting prediction market sports volume has approached or exceeded licensed sports betting in dollar terms.
Democrats Now 60% Senate, 90% House Favorites on Prediction Markets — Biggest Shift Since 2024
Prediction markets on Kalshi and Polymarket have moved decisively toward Democratic control of both congressional chambers in the 2026 midterms. Democrats are priced at approximately 60% to win Senate control (Republicans 40%) and roughly 90% to win House control as of September 21. Republicans had been at 80%+ in Senate control markets when the market opened in November 2024. The shift began in February 2026 following the Iran war and has accelerated through fall as rising gas prices pushed Trump's approval ratings lower. More than 500 active midterm markets are live across Kalshi and Polymarket combined.