Kalshi, Polymarket, and the Federal Courts

Dispute Origins: Kalshi Filings

The legal war that redefined the boundaries between American commodities regulation and political elections began in June 2023. KalshiEX LLC, a federally registered Designated Contract Market (DCM) regulated by the Commodity Futures Trading Commission, submitted two binary event contracts for formal certification under CFTC Rule 40.2.

The contracts were straightforward:

Will the Democratic Party control the U.S. House of Representatives in the 119th Congress?

Will the Republican Party control the U.S. Senate in the 119th Congress?

Contracts traded between 1 cent and 99 cents, with winning contracts paying out one dollar. Kalshi designed the contracts as commercial hedging instruments for businesses and investors whose financial assets faced significant regulatory and tax volatility based on which political party controlled Capitol Hill.

On September 22, 2023, the CFTC issued a formal administrative order prohibiting Kalshi from listing the contracts. Relying on Section 5c(c)(5)(C) of the Commodity Exchange Act, the Commission asserted that election contracts involved gaming and were contrary to the public interest, alleging that election betting threatened the public perception of democratic elections.

District Court Ruling: Kalshi v. CFTC

In November 2023, Kalshi filed a major lawsuit against the CFTC in the U.S. District Court for the District of Columbia, captioned KalshiEX LLC v. Commodity Futures Trading Commission (Case No. 23-cv-3274). Kalshi was represented by prominent appellate advocate Yaakov Roth of Jones Day, who argued that the Commission had engaged in unlawful administrative overreach in violation of the Administrative Procedure Act (APA).

Kalshi's core legal argument was textual:

Under the CEA, the term gaming possesses an established legal definition centered on games of chance, sports contests, and casino gaming. Political elections are solemn civic processes governed by constitutional law, not games. Because elections are not games, trading derivatives on their outcomes cannot constitute gaming under the statute.

On September 6, 2024, U.S. District Judge Jia Cobb issued a monumental 32-page memorandum opinion resoundingly ruling in favor of Kalshi.

Judge Cobb held that the CFTC had exceeded its statutory authority. Analyzing the text, statutory context, and legislative history of the CEA, Judge Cobb concluded that the word gaming cannot be stretched to encompass election contests: This Court holds that the CFTC acted outside of its statutory authority when it prohibited Kalshi from listing its congressional control contracts. The Commission's reading would give it virtually unlimited power to declare any contest in human life to be gaming.

D.C. Circuit Appeal and Ruling

The CFTC immediately filed an emergency motion for a stay pending appeal before the U.S. Court of Appeals for the District of Columbia Circuit, warning that allowing election betting would irreparably harm public trust in the 2024 presidential election.

On October 2, 2024, a unanimous three-judge panel of the D.C. Circuit-comprising Judges Patricia Millett, Cornelia Pillard, and Florence Pan-delivered a crushing blow to the CFTC, denying the emergency stay in a sharp per curiam order. The appellate court held that the CFTC had failed to demonstrate that trading in congressional contracts would cause irreparable harm or that the agency was likely to succeed on the merits of its appeal.

The D.C. Circuit's order dismantled the federal administrative barrier. Hours after the ruling, Kalshi launched nationwide trading on congressional control and the 2024 presidential race.

Simultaneously, decentralized prediction platform Polymarket, operating on blockchain technology, captured global headlines, processing over three billion dollars in election wagering volume. By Election Day in November 2024, major financial news networks, including Bloomberg, CNBC, and CNN, routinely cited Kalshi and Polymarket contract probabilities alongside traditional television polling data.

Precedents Transforming Event Markets

The legal triumphs of 2024 established enduring constitutional and administrative precedents that govern the market in 2026:

• 1. Rejection of Agency Regulatory Creep: Federal courts affirmed that administrative agencies cannot rewrite statutory definitions to block commercial innovations simply because the agency harbors policy skepticism.
• 2. Legitimization of Binary Event Derivatives: Event contracts are legally recognized as legitimate financial instruments governed by Title 7 commodities law rather than state gambling penal codes.
• 3. Integration with Institutional Capital: Major Wall Street brokerages, proprietary trading desks, and commercial prediction exchanges have established clearing agreements, allowing millions of Americans to trade political, economic, and cultural event contracts directly from their investment brokerage accounts.

The epic courtroom battle waged by Kalshi stands alongside Murphy v. NCAA as one of the definitive legal landmarks of modern American gaming and financial policy.

Judge Cobb's Landmark D.C. District Court Ruling: Elections Are Not Gaming

The definitive legal turning point for American prediction markets arrived in the landmark federal court battle KalshiEX LLC v. Commodity Futures Trading Commission. In September 2023, the CFTC issued a formal administrative order prohibiting Kalshi from listing event contracts on which political party would control the U.S. House of Representatives and Senate, claiming the contracts involved unlawful gaming under CEA Section 5c(c)(5) and were contrary to the public interest.

Kalshi immediately filed suit in the United States District Court for the District of Columbia under the Administrative Procedure Act (APA), challenging the CFTC's order as arbitrary, capricious, and in excess of statutory jurisdiction. On September 12, 2024, U.S. District Judge Jia M. Cobb issued a historic memorandum opinion (Civil Action No. 23-3261), vacating the CFTC's prohibition order. Judge Cobb engaged in a rigorous textual analysis of the Commodity Exchange Act, concluding that an election is not "gaming" under the plain and ordinary meaning of the statute.

Judge Cobb held that the CFTC had exceeded its statutory authority by rewriting the plain text of federal law to invent a regulatory prohibition that Congress never enacted. The Court observed that while state statutes historically regulated election betting, federal commodities law does not grant the CFTC unbounded discretion to declare any contract it disfavors as contrary to the public interest without concrete statutory grounds, delivering an emphatic victory for financial innovation.

The D.C. Circuit Stay Denial and CFTC Enforcement Settlement Precedents

Following Judge Cobb's ruling, the CFTC filed an emergency motion for an administrative stay pending appeal in the United States Court of Appeals for the District of Columbia Circuit, warning that permitting election contracts to trade in the weeks before the 2024 presidential election would inflict irreparable harm on public trust in American elections. In a closely watched hearing before a three-judge appellate panel, Kalshi's legal team demonstrated that the CFTC had failed to show a single instance of market manipulation or concrete harm on regulated exchanges.

On October 2, 2024, the D.C. Circuit unanimously denied the CFTC's emergency motion for a stay (No. 24-5205), clearing the way for Kalshi to immediately launch legal trading in congressional and presidential event contracts. The appellate court's refusal to intervene established an extraordinary legal precedent: confirming that Designated Contract Markets hold an affirmative statutory right to list and trade political derivatives that satisfy federal core principles.

The D.C. Circuit precedent fundamentally transformed the regulatory landscape. Confronted with firm judicial repudiation, the CFTC was forced to abandon its emergency litigation, solidifying prediction markets as an accepted, federally recognized sector of the American financial system.