A federal judge has temporarily prevented Minnesota from enforcing a new law that would have banned prediction markets, giving platforms such as Kalshi and Polymarket an early legal victory while the broader case moves through the courts.
The ruling allows both companies to continue offering event based contracts to users in Minnesota for the time being.
Judge Finds Federal Law Likely Takes Priority
According to Reuters, US District Judge Katherine Menendez granted a preliminary injunction after concluding that Minnesota’s law is likely overridden by the federal Commodity Exchange Act.
The legislation, which was scheduled to take effect on Saturday, would have made it illegal to operate, host, or promote prediction markets within the state.
The legal challenge followed legislation signed by Governor Tim Walz in May. Unlike previous disputes in other states, where regulators argued prediction market platforms were operating unlicensed gambling businesses under existing gaming laws, Minnesota introduced legislation specifically targeting prediction markets.
Judge Menendez found that several contracts offered by Kalshi and Polymarket are likely to qualify as swaps under federal law. Since swaps fall under the jurisdiction of the US Commodity Futures Trading Commission (CFTC), she concluded that federal regulation is likely to preempt the state’s attempt to ban those products.
The judge noted that the scope of the injunction could be narrowed later if the court determines that certain contracts do not meet the legal definition of swaps. Until then, maintaining the current status was deemed the most appropriate course while the lawsuit proceeds.
Both Sides Stand by Their Positions
Kalshi welcomed the ruling, with company spokesperson Elisabeth Diana saying the decision reinforces the principle that states cannot regulate activities beyond their legal authority.
Minnesota Attorney General Keith Ellison, however, said the state disagrees with the court’s decision and intends to continue defending the legislation.
Ellison argued that prediction markets are a form of gambling and maintained that Minnesota has the right to protect residents from what he described as predatory gambling activities.
Legal Challenges Continue for Prediction Markets
The Minnesota case is the latest in a series of legal and regulatory challenges facing Kalshi.
The company is also dealing with restrictions and disputes in Massachusetts, Michigan, Nevada, and Washington as regulators continue examining the legality of prediction markets across different jurisdictions.
Earlier this year, Kalshi also strengthened enforcement of its own compliance policies.
In April, the platform suspended three US political candidates after determining they had traded contracts linked to elections in which they were competing. Kalshi classified the activity as political insider trading and said it violated trading rules approved by the CFTC.
Minnesota State Senator Matt Klein and Texas candidate Ezekiel Enriquez each placed trades worth less than $100 on markets involving their own elections. Both accepted financial penalties and five year suspensions from the platform.
Virginia candidate Mark Moran received a larger fine and an identical five year ban after executing multiple trades and declining to settle with the company. Moran later said he had placed the trades to test Kalshi’s enforcement procedures.
Polymarket Also Faces Scrutiny
The ruling also comes amid separate legal issues involving Polymarket.
In May, federal prosecutors charged Google software engineer Michele Spagnuolo, known online as AlphaRaccoon, with allegedly using confidential Google search data to generate approximately $1.2 million in profits through trades on Polymarket.
Authorities claim he accessed unreleased Year in Search 2025 rankings before they became public and used that nonpublic information to place successful bets on a related prediction market.#crypto#cryptonews https://coinsignals.net https://t.me/coinsignalpublic
