Federal court blocks Minnesota ban on prediction markets for now

A federal court temporarily blocked a Minnesota ban on prediction markets, siding with the Trump administration in a high-stakes clash over regulation of the fast-growing industry.

The judgment late Monday allows prediction markets like Polymarket and Kalshi -- both of which are also plaintiffs in the case -- to operate in the state while the case is heard.

Plaintiffs argued that a federal agency tasked with regulating financial instruments holds sole responsibility for oversight of prediction markets, preventing a state from issuing a restriction of the type enacted in Minnesota.

The state argued that prediction markets fell under its oversight authority centered on gambling firms.

In the judgment issued on Monday, U.S. District Judge Katherine Menendez said the plaintiffs had "met their burden to show they are likely to succeed on the merits" of their claim that oversight authority lies with the Commodity Futures Trading Commission (CFTC), a federal agency.

The judge acknowledged, however, that at least some wagers made on prediction markets would likely fall outside of exclusive federal oversight.

Minnesota Gov. Tim Walz enacted the ban in May in an effort to rein in the markets, which some lawmakers said they consider online gambling platforms.

Soon afterward, the Trump administration joined top prediction markets in a lawsuit against the measure, setting off the legal standoff. The ban was set to take effect on Aug. 1.

In response to ABC News' request for comment, the CFTC referred to a post on X issued by the agency's chair, Michael Selig.

"Today, a Minnesota federal court put a halt to aggressive state overreach seeking to ban federally regulated derivatives markets. This is the second time a court has granted an injunction in favor of the agency in defense of its jurisdiction over prediction markets. The @CFTC appreciates the court’s careful consideration of the issues," Selig said in a post on Monday.

In April, a federal judge blocked Arizona from continuing a criminal case against Kalshi. The state filed charges claiming the company operated an illegal, unlicensed gambling business and accepted unlawful wagers from Arizona residents.

At the time, a spokesperson for Kalshi denied the allegations, describing them as "meritless."

Deploying a similar argument, the CFTC said that prediction markets fall under federal oversight rather than state gambling regulations.

Kalshi attorney Robert Denault lauded the court's decision in April as a "step in the right direction."

"We appreciate the CFTC asserting its exclusive jurisdiction over our exchange, and the court’s careful consideration of the issues. Under the U.S. Constitution, federal law is supreme," Denault said in a post on X at the time.

Minnesota Attorney General Keith Ellison, who represented defendants in the case in that state, voiced disagreement with the court's ruling on Monday.

"Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities. We respectfully disagree with the Court's determination that the proper ‘status quo’ to maintain is one that allows predatory gambling apps to proliferate," Ellison told ABC News in a statement.

Some prediction markets, meanwhile, applauded the decision.

"Today’s decision makes it clear: States cannot ban things that they don't have jurisdiction over. It runs directly against what Congress intended when it gave explicit, exclusive jurisdiction over financial markets to federal regulators, and it hurts the traders and everyday citizens who rely on these markets. We appreciate the court’s thoughtful consideration of this matter," Elisabeth Diana, a spokesperson for Kalshi, told ABC News.

Neal Kumar, chief legal officer at Polymarket, also voiced approval for the judgment.

"We appreciate the court's decision to maintain our status as a federally licensed and regulated entity. This opinion makes clear that prediction markets on CFTC-registered exchanges are governed by federal law, not a patchwork of state rules. We look forward to continuing to serve our users in Minnesota," Kumar told ABC News in a statement.

ABC News' Lucien Bruggeman and Laura Romero contributed to this report.