US Government Sues Illinois to Block State From Policing Federally Regulated Prediction Markets

The US Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) sued Illinois on April 2, 2026, asking a federal court to permanently block the state from applying gambling laws to prediction market operators licensed as Designated Contract Markets (DCMs).

The complaint, filed under case number 1:26-cv-03659 in the US District Court for the Northern District of Illinois, names the state itself, Governor J.B. Pritzker, Attorney General Kwame Raoul, and five Illinois Gaming Board (IGB) officials as defendants.

The Preemption Argument

At the core of the lawsuit is a federal preemption claim. The CFTC argues that the Commodity Exchange Act (CEA), 7 U.S.C. § 2(a)(1)(A), grants the agency exclusive jurisdiction over swaps and futures traded on federally regulated exchanges — jurisdiction that Illinois cannot override.

The filing traces that authority back to Congress’s deliberate effort in 1974 to replace a fragmented state-by-state regulatory system with a single federal framework. The CFTC contends Illinois’s enforcement actions would recreate that same patchwork, forcing DCMs to seek licenses in all 50 states and making it impossible to fulfill their federal mandate to provide impartial national access to all eligible participants.

The complaint challenges three specific Illinois statutes as preempted when applied to DCMs: the Illinois Sports Wagering Act, the Illinois Criminal Code’s gambling provisions, and the Illinois Gambling Act.

What Triggered the Lawsuit

The IGB sent cease-and-desist letters to four CFTC-regulated entities, accusing them of unlicensed sports wagering under Illinois law. Kalshi, Crypto.com, and Robinhood received letters on April 1, 2025. Polymarket received its letter on January 27, 2026.

The IGB letters threatened civil and criminal penalties and demanded the firms stop offering event contract products to Illinois residents without an IGB-issued license. The CFTC argues that framing is legally flawed — event contracts structured as swaps fall under the CEA, not state gambling codes.

As of the filing date, at least eight CFTC-regulated DCMs had collectively self-certified more than 3,000 event contracts with the agency. There are currently 25 active DCM designations in the United States, including Kalshi, Polymarket, and Crypto.com.

Relief Sought and Broader Context

Plaintiffs are asking the court to declare the three challenged Illinois statutes unconstitutional as applied to DCMs and to issue a permanent injunction barring the state and its officials from any further enforcement. The CFTC also seeks attorneys’ fees and costs.

The lawsuit arrives as the CFTC actively works to clarify its rules around prediction markets. The agency published an advisory letter to DCMs on March 12, 2026, and on March 16, 2026, it published an advance notice of proposed rulemaking in the Federal Register soliciting public comments on event contracts.

None of the named defendants had responded publicly to the complaint as of the time of filing. The case sets up a direct constitutional test of whether states retain any authority to apply gambling laws to exchanges already operating under federal commodity law licenses.

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