Federal government sues Minnesota over prediction market ban
The law is scheduled to go into effect Aug. 1.
Minnesota took a step against the controversial online prediction markets by passing a bill to ban those services from the state this week.
However, the federal government has stepped in and is challenging the bipartisan law.
The Commodity Futures Trading Commission (CFTC) filed a lawsuit against the state on Tuesday and seeks a preliminary injunction to stop the law from going into effect on Aug. 1.
Online prediction markets, such as Polymarket and Kalshi, have grown in recent years, as they let people to place wagers on sports, elections and even public events.
Under the law, which was signed by Gov. Tim Walz on Monday, all online prediction markets are prohibited from hosting, creating or advertising in the state.
Doing so would be considered a felony. The law, which passed in the Minnesota State Senate 57-9 and in the Minnesota House 100-32, does not affect prediction market customers.
The bill's proponents argued that the companies running the prediction markets need more regulation, especially with reports of customers getting into financial burden over their losses.
"We're seeing studies come out that say [the companies] are targeting 18- to 21-year-olds and we are seeing gambling starting younger and younger," Minnesota Rep. Emma Greenman, the Democrat and author of the bill, told ABC News on Wednesday.
The CFTC argued the law "undermine(s) the federal regulatory regime set up by Congress more than 50 years ago."
The agency specifically cited "criminalizing weather-related event contracts," in its argument against the law.
Some farmers have used weather derivatives, which make wagers on the weather, as future trading income to counter inclement weather effects on their harvests, the agency noted.
"Minnesota farmers have relied on critical hedging products on weather and crop-related events for decades to mitigate their risks. Governor Walz chose to put special interests first and American farmers and innovators last," CFTC Chairman Michael S. Selig said in a statement.
However, Greenman noted that the finalized version of the bill has an exception that allows for weather derivatives.
"We narrowed it down to include and cover these things that don't have the financial utility that companies and markets have been using for years," she said.
"Instead of CFTC using their power to regulate, they are coming after us and not doing their homework," Greenman added.
When asked about the law's carveout for weather derivatives by ABC News, a spokesperson for the CFTC referred to Selig's statement.
The law's current language lists exceptions to the ban on forms of gambling that have been on the books and regulated by the state for years, like lottery sales, horse betting and casinos.
This includes "a contract to insure, indemnify, guarantee or otherwise compensate another for a harm or loss sustained, even though the loss depends upon chance," "a contract for the purchase or sale at a future date of securities or other commodities" and other companies licensed by the state's Gambling Control Board.
Minnesota State Attorney General Keith Ellison said in a statement that his office is reviewing the suit and will respond in court.
"I'm very concerned about the harms of prediction markets on Minnesotans. Prediction markets are designed to be addictive and prey especially on young people and low-income folks. They help the ultra-rich get richer and the rest of us get poorer," he said in a statement.
The CFTC has sued other states that have passed rules and regulations against the prediction markets including Arizona, Connecticut, Illinois and New York.
Those cases are ongoing.
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