Developing The CFTC's Tenth State Lawsuit Is Its Weakest, and Paragraph 79 Shows Why

Editor's note: TrueEdge builds odds tools and earns affiliate commissions from licensed sportsbooks, which compete with the exchanges this piece is about. Our standing position is that states should not criminalise federally registered exchanges, and that the fight belongs in civil court and in Congress. Weigh the conflict.

The Commodity Futures Trading Commission and the Justice Department sued the State of Utah and its attorney general, Derek Brown, in federal court in Salt Lake City on Monday. The agency announced it on Tuesday. The suit asks for an injunction barring Utah from "investigating" or enforcing its gambling laws against any CFTC-registered exchange or "their affiliates and partners". The aim is to stop the civil case Brown filed in state court on October 20 against Kalshi and two Susquehanna trading firms. "Utah seeks to shut down prediction markets across a wide variety of markets," the CFTC's chairman, Michael Selig, said in the agency's release.

Utah is the tenth state the commission has sued since April, by Covers' count, and the complaint lists the other nine. That count is the reason to read this one closely. It is the suit where the government's preemption theory has the least going for it, and the agency's own filing shows that it knows.

What the complaint leaves out

The government filed in the District of Utah. On August 4, in that same district, U.S. District Judge Robert Shelby granted Utah summary judgment against Kalshi in the company's own preemption suit. He held that the Commodity Exchange Act does not displace Utah's gambling ban, the Salt Lake Tribune reported. Kalshi appealed. On September 8 the Tenth Circuit refused, in a short per curiam order in No. 26-4100, to block Utah while that appeal runs.

The CFTC's complaint mentions neither ruling. We searched all 33 pages for Shelby's name, for the appeal number and for "summary judgment" and found nothing. The circuit the government does cite, the Ninth, gets one sentence from KalshiEX v. Assad: "the CEA expressly preempts state laws regulating swaps 'traded or executed on' a DCM." That sentence is accurate. It was also the starting point of an August 28 opinion that went on to hold Kalshi's sports contracts are likely not swaps. "The Super Bowl is an event," the panel wrote, "but who wins it, or by how many points, is merely an outcome." Nevada won that case.

A complaint is advocacy, and nobody expects the government to argue the other side. But a federal court in Utah will read Shelby's opinion whether the CFTC cites it or not. The Tenth Circuit already has Kalshi's appeal on the same question, and leaving both out does not make the problem go away.

Paragraph 79

The load-bearing sentence is in the claim for relief. Paragraph 79 says the contracts Utah targets "are swaps as defined by the CEA." It then adds that "to the extent that the Commission and SEC's proposed rulemaking to further define 'swaps' to encompass sports, politics, weather, and culture event contracts becomes final, that would provide an independent basis to classify the event contracts targeted by Utah as swaps."

That is the government telling the court its strongest argument does not exist yet. The proposed rule was announced on October 9 and published as 91 FR 66022. Comments are due 30 days after it appeared in the Federal Register, so the earliest it can be final is some time after mid-November. The other half of the plan is already law. An interim final rule, effective on publication and cited in paragraph 59 at 91 Fed. Reg. 65,969, declares that "sports-wagering contracts entered into on a sportsbook and casino games, are not swaps and do not fall within the CFTC's jurisdiction."

Put the two rules together and the strategy is clear. A sportsbook bet is defined as not a swap, which keeps state regulators away from the agency's door. An exchange contract on the same game is defined as a swap, which puts it inside the CFTC's "exclusive jurisdiction." If the proposal is finalised, the Ninth Circuit's distinction between an event and its outcome stops mattering, because the answer would no longer depend on the statute's wording about consequences. It would depend on the agency's rule.

Our October 10 piece on that rule pair argued the approach is coherent. It still is. The difficulty is timing. Paragraph 79 asks a judge in Utah to enjoin a state today on the strength of a rule that might be final in December.

The best case for the government

The government has a real answer, and it is a strong one.

The first part is that this is not Kalshi's case. Shelby ruled on a suit brought by a private company. Here the plaintiff is the United States, suing in equity under the Supremacy Clause to protect what the complaint calls its "sovereign, legally protected interest." Shelby's summary judgment does not bind the federal government, which was not a party. We do not know which judge has drawn No. 2:26-cv-01055, and a different judge could read the statute differently.

The second part is the record. According to the complaint, federal judges have granted the government or the exchanges preliminary injunctions in Arizona, Illinois and Minnesota, and the Third Circuit sided with Kalshi 2-1 against New Jersey in April. Ten suits is a campaign, and a campaign does not need every case to be a winner. The Utah case adds a state with no sportsbooks, no lottery and, in Brown's words, a view that "gambling is gambling, no matter what any company calls it." Any national rule has to cover that kind of state too.

The third part is the statute. The interim rule cites 15 U.S.C. § 8302(d), which expressly authorises the agencies to "further define" swap. Since Loper Bright ended Chevron deference in 2024, a rule like this gets no automatic weight from the courts. An express statutory delegation to define a term is a different matter, and that is the kind of power the courts have said they will still respect.

All three points are fair, and we accept the first. The second point is weaker in Utah than in the other nine states. Here a federal judge has already entered final judgment against preemption, not just declined to grant an early injunction, and the appeals court above him has refused to grant interim relief on the same theory. The third point is why we think the government's real fight is not in Salt Lake City. It is in the rulemaking docket, and after that in the lawsuits over the final rule. A coalition of 44 state attorneys general has already told the agency, Fortune reported in August, that its proposed prediction-market rules exceed its authority.

What would prove us wrong

Our prediction is that the District of Utah will not enjoin Brown's state case before the Tenth Circuit rules in KalshiEX v. Cox, and that the government will lean on paragraph 79 harder once the swap rule is final. If a Utah federal judge grants a preliminary injunction this year on the statute alone, we were wrong about how much Shelby's ruling matters to his colleagues.

For anyone trading these contracts from Utah, nothing changed this week. The Tribune reported in August that Shelby's ruling did not order Kalshi out of the state. Brown's state-court suit seeks restitution and disgorgement, and it is the case that could change that. Our October 20 analysis explains why Utah also named the market makers, and that part of the case is unaffected by anything filed on Monday.

We still think a state should not be able to put a federally registered exchange out of business through its gambling code. Whether that is the law is a different question. The CFTC's complaint does not answer it and leaves the next ruling to whoever has the docket.