Securities Regulation Daily Wrap Up, EXCHANGES AND MARKET REGULATION—N.D. Ill.: Kalshi sues Illinois over prediction markets regulation, (Jun 25, 2026)
Law Firms Mentioned:UB Greensfelder LLP
Organizations Mentioned:KalshiEX LLC
Kalshi said it will face criminal penalties in Illinois as of July 1 unless it “pays Illinois millions of dollars and submits to the State’s regulatory regime.”
The Kalshi exchange has filed a complaint in Illinois federal district court seeking an injunction to prevent Illinois officials from enforcing the state’s gambling laws against Kalshi based on its operation of a federally-regulated designated contract market (DCM). The lawsuit follows Illinois’ recent enactment of a new law that imposes a transaction tax on sports-related trading on exchanges (KalshiEx v. Raoul, No. 1:26-cv-07363 (N.D. Ill. June 23, 2026)).
The new lawsuit adds Illinois to a growing list of states challenged by Kalshi over the application of state gambling laws and excise taxes to federally-regulated prediction markets. Illinois and other states have also been sued by the CFTC and Department of Justice for sending cease-and-desist letters to Kalshi and other exchanges relating to alleged illegal gambling. The CFTC asserts exclusive authority to regulate the trading of event contracts on CFTC-registered exchanges.
The lawsuit names several state officials including Illinois Governor J.B. Pritzker, Attorney General Kwame Raoul, and state gaming officials.
New Illinois law. Illinois amended its sports wagering law on June 16 as part of SB 3019. The law newly defines “exchange wager” to explicitly bring sports-related transactions on prediction markets within the scope of the statute, effectively asserting the state’s oversight authority over exchanges like Kalshi that offer trading on sports-related events.
The law also imposes a transaction tax on exchange wagers of 1.75 percent, increasing to 3.5 percent after the first five million exchange wagers per year per licensee. The transaction tax is on top of all other taxes and payments owed under the act.
Kalshi complaint. Kalshi argues that it is adversely affected by the new Illinois law.
“[J]ust last week, Illinois enacted SB 3019, which impermissibly usurps the CFTC’s exclusive jurisdiction by barring DCMs from offering sports event contracts unless they obtain a state license (at a cost of millions of dollars) and comply with a range of intrusive state gambling regulations—including a requirement that their contracts be offered exclusively to Illinois residents,” Kalshi stated.
Kalshi said that when the relevant provisions go into effect on July 1, it will be subject to criminal penalties in Illinois unless it either ceases to offer event contracts or submits to the state’s regulatory regime. Either way, Kalshi said it will be forced to violate federal law because the CFTC requires that all DCMs offer nationwide, uniform access to their markets.
Federal preemption. Kalshi asserts that Illinois’ gambling laws are preempted by the Commodity Exchange Act (CEA), which grants CFTC exclusive jurisdiction over swaps traded on DCMs. Kalshi stated that it cannot comply with Illinois’ state-specific requirements, including that licensed entities may only accept trades “from a person physically located in the State,” without violating the CFTC’s requirement that DCMs must provide “impartial access” to their markets.
Kalshi argues that SB 3019 is preempted in several ways:
It expressly violates the CEA’s exclusive jurisdiction by asserting concurrent state jurisdiction over sports event contracts traded on federally-regulated DCMs;
It intrudes on the field of exchange-traded derivatives that Congress has reserved entirely for the federal government;
It forces regulated entities to choose between violating federal or state law.
Relief sought. Kalshi seeks declaratory and injunctive relief prohibiting Illinois state officials from enforcing the sports wagering law against Kalshi, along with “any other Illinois law that attempts to effectively regulate [Kalshi’s] exchange.”
This is case No. 1:26-cv-07363.
Attorneys: Susan Meyer (UB Greensfelder LLP) for KalshiEX LLC.
Companies: KalshiEX LLC
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