CFTC Warning to Kalshi and New York Ruling Against Novig Signal Heightened Scrutiny for Prediction Markets

Prediction markets hit dual setbacks this week. The CFTC privately warned Kalshi of potential enforcement charges over contract notification failures. In New York, a federal judge denied Novig's bid to block state gambling enforcement, ruling its sports event contracts amount to betting rather than CFTC-regulated swaps.

The moves come as Rep. Ro Khanna urged Congress to ban sports prediction markets entirely. He called them “sports betting disguised as financial trading” that flout state and tribal gambling laws, siphon tax revenues, fuel addiction, and expose young Americans to public health risks while evading consumer safeguards. The reporting appears in Gambling Insider.

CFTC Warns Kalshi on Notification Compliance

The agency has investigated Kalshi for months over whether the exchange met federal product notification requirements for dozens of contracts. Under CFTC self-certification rules, platforms may list new products without prior approval if they attest compliance with all laws.

No charges have been filed. A settlement remains possible. Kalshi spokesperson Elisabeth Diana stated the warning concerned “a procedural error involving the submission of a handful of contracts, many of which weren’t live.” She added that the company is “already addressing the issue.”

The potential action arrives while the CFTC has otherwise defended its jurisdiction against state gambling regulators. The agency is also investigating Polymarket, though the scope remains unclear.

Judge McMahon Denies Novig Injunction

U.S. District Judge Colleen McMahon rejected Novig’s request for a preliminary injunction in a November 10 ruling. She held that Novig’s sports event contracts are not swaps under the Commodity Exchange Act. Federal law does not preempt New York’s gambling regulations.

McMahon questioned the CFTC’s shifting stance on sports contracts. She criticized its October rules for failing to distinguish them from traditional wagers. The judge described the CFTC’s emergency order allowing Kalshi to operate in New York despite state rulings as one that “smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption.”

She dismissed Novig’s peer-to-peer model as a distinguishing factor. McMahon wrote: “Novig makes its money, not off the sucker who places a losing bet on a sports event, but by charging two suckers a fee for the privilege of betting against each other on its platform. Again, not a difference that makes a difference.”

The licensing conflict argument received equally short shrift. McMahon called it “ridiculous” and noted Novig could obtain gambling licenses, as it had in Colorado, and deploy geofencing. She concluded: “The Court is not required to disregard common sense – Novig’s sports event contracts are sports betting.”

These parallel developments tighten the legal perimeter around prediction platforms. Operators face renewed pressure to reconcile federal self-certification with state gambling frameworks that courts increasingly treat as controlling.