We recently covered Washington’s court order against Kalshi, a state finding, in civil court, that certain contracts amounted to illegal gambling. Minnesota went considerably further by creating a criminal statute making it a felony to operate, host, or even advertise a prediction market at all.
Days before it was set to take effect, a federal judge halted it. The law isn’t dead, and the underlying legal question is still genuinely unresolved, but the shape of this dispute is different from Washington’s in several real ways.
Governor Tim Walz signed SF 4760 on May 18, 2026, as part of a broader public safety bill. Starting August 1, 2026, creating, operating, hosting, or advertising a prediction market platform in Minnesota carries criminal penalties of up to five years in prison and a $10,000 fine.
Multiple independent news sources describe this as the first standalone criminal ban of its kind in the country. It is not a cease-and-desist order nor a civil injunction, but a felony statute.
The CFTC sued to block it the very next day, May 19. CFTC Chairman Michael Selig argued the law’s language threatened individuals, not just companies: “This Minnesota law turns lawful operators and participants in prediction markets into felons overnight.” A more careful legal reading, though suggests Selig’s framing overstates this.
The law’s actual target, per legal analysis, is the companies running these platforms. Someone who simply places a trade on Kalshi or Polymarket isn’t committing a crime under this statute.
On July 27, days before the August 1 effective date, U.S. District Judge Katherine Menendez granted a preliminary injunction blocking the law, finding the CFTC, Kalshi, and Polymarket “likely to succeed” on their claim that federal law preempts Minnesota’s statute. Her actual order was specific about the scope:
“The Court finds that Plaintiffs have met their burden to show they are likely to succeed on the merits of their express-preemption claims, at least as to the application of Minnesota’s law to many of the trades listed on Kalshi’s and Polymarket US’s platforms.”
That “many of the trades” phrasing is key. This isn’t a blanket ruling that states can never touch prediction markets. Menendez’s reasoning turns on a specific technical question as to whether a given contract qualifies as a “swap” under the Commodity Exchange Act, the CFTC’s actual jurisdictional trigger.
She found the CFTC’s exclusive jurisdiction likely covers “a considerable swath” of what Kalshi and Polymarket offer, but was explicit that the platforms hadn’t shown every listed contract meets that definition. A final, permanent injunction, assuming the case gets there, could end up protecting fewer products than this preliminary order does.
Minnesota Attorney General Keith Ellison made clear this isn’t over:
“Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities.”
That’s the public-facing version. His actual June 18 court filing goes further, arguing prediction markets are “fundamentally different from traditional commodities and futures markets because participants are not hedging commercial risks or facilitating economic activity.”
He also points to specific risks such as addictive behavior, consumer losses, market manipulation, and exploitation of nonpublic information. He added that the court’s approach to maintaining the “status quo” pending trial was one his office disagreed with, and confirmed his office will continue to “litigate this case and defend the State’s duly passed law.” Kalshi and Polymarket, unsurprisingly, took the opposite view. Kalshi spokeswoman Elisabeth Diana said, “Today’s decision makes it clear: States cannot ban things that they don’t have jurisdiction over.”
One of the state’s core arguments is that event contracts tied to elections and politics create real conflict-of-interest risk in the possibility that someone with the power to influence an outcome could also profit from betting on it. Minnesota has a specific, real example.
State senator Matt Klein was temporarily restricted by Kalshi after placing a contract tied to his own election. The restriction was reportedly addressed under the company’s own policies, but the incident is exactly the kind of scenario Minnesota’s filing points to as justification for state-level scrutiny, not just federal oversight.
That concern extends beyond state politics, too. Federal investigators have separately examined allegations that individuals used non-public information to trade contracts tied to geopolitical developments.
These include, per some reports, profiting from contracts on military conflicts before relevant information became publicly known. That’s a materially more serious concern than sports betting specifically, and it’s part of why this dispute has drawn more scrutiny than a typical state-vs-operator gambling fight.
Four days after the injunction, on July 31, New York filed its own lawsuit against Kalshi.
They used a different legal approach than Minnesota’s criminal statute, alleging the platform operates as unlicensed gambling and seeking an injunction, restitution, penalties, and forfeiture of what the state calls illegal gains.
Those are allegations Kalshi can still contest, not an established finding, but it’s a concrete sign this dispute isn’t slowing down just because Minnesota’s specific law hit a setback.
Separately, and on a different track entirely from the state-by-state litigation, the CFTC has its own proposed rule intended to more clearly define where the line sits.
They want to establish factors for public-interest review and a process for evaluating certain event contracts, with public comment closing the same day as Minnesota’s injunction.
No final rule has been issued yet, but it’s worth knowing this is being fought on a regulatory track in parallel to the legal one.
Minnesota’s injunction was explicitly framed by the CFTC as its second recent win of this kind. In April, the Third Circuit Court of Appeals ruled New Jersey couldn’t apply its sports gambling law to Kalshi’s contracts. In May, an Arizona federal court granted a similar injunction on the same preemption theory. Tennessee saw an earlier version of this same fight resolve in Kalshi’s favor back in March 2025.
This is also a much bigger fight than Minnesota alone. More than a dozen states have moved against Kalshi in some form. Separately from the state-specific cases already mentioned, 38 state attorneys general are backing a Massachusetts lawsuit against Kalshi. The CFTC has mirrored its Minnesota strategy against New York and Wisconsin directly as well.
Nevada is the clearest counterexample to the “prediction markets keep winning” pattern, and it’s a real loss, not just a procedural delay. A Nevada court reportedly ruled that Kalshi’s event contracts do align with the state’s existing gambling laws. This is a substantive finding against the company, not a punt back to state court on a technicality.
Kalshi and Polymarket both raised free-speech claims, and they’re not identical.
Kalshi argues that criminalizing advertising a prediction market platform is an unconstitutional restriction on commercial speech.
Polymarket’s version is narrower and more specific. The law could restrict the dissemination of the pricing data and forecasts its platform generates, arguably a different kind of information than a straightforward ad.
Whether either claim succeeds is a separate legal question from the Supremacy Clause preemption argument the CFTC is making.
Here’s a detail that doesn’t come up in the Kalshi/Washington dispute at all.
The CFTC argues Minnesota’s law is written so broadly it could sweep in legitimate agricultural hedging such as weather and crop-yield derivatives that federally regulated exchanges like the Chicago Board of Trade and Chicago Mercantile Exchange have offered since the early 1990s.
The law does include a carve-out for traditional agricultural hedging, but the CFTC’s position is that it isn’t broad enough to cleanly separate those instruments from the sports and election contracts the law is actually aimed at.
This gives the dispute a real economic constituency beyond prediction-market bettors specifically; actual farmers who’ve used these instruments for decades.
Minnesota is the CFTC’s sixth lawsuit against a state in seven weeks. This isn’t a slow-moving regulatory process, it’s a rapid, escalating confrontation, and Minnesota’s criminal framing makes it the sharpest escalation yet.
The post Minnesota Just Made Prediction Markets a Felony. Here’s What’s Different From the Washington Ruling appeared first on BitcoinChaser.
