Former SEC, CFTC Chair Gary Gensler argues that prediction markets don’t overrule state regulations

“To put the argument in the plainest real-world terms: Senate Majority Leader Harry Reid of Nevada would never have consented to or passively accepted legislation displacing an activity so critical to his state’s economy and politics by permitting sports betting only under CFTC auspices,” Gensler’s brief said.

Courts have so far been split; some have ruled in favor of prediction market providers, while others have ruled in favor of states.

The Third Circuit Court of Appeals ruled in April that the state of New Jersey could not shut down prediction markets, but panel of the Ninth Circuit Court of Appeals seemed more inclined to rule for the states.

It is likely that the Supreme Court will ultimately take up the issue, and Congress is also poking around.

Amicus briefs

The CFTC, currently helmed by Chair Mike Selig, filed its own amicus brief in this case last month, arguing that any event contract traded by a designated contract market overseen by the regulator is a swap.

Congress’ definition of a swap was broad and the language in the statutes allows for the CFTC-regulated firms to offer their products, the regulator’s filing said.

Genler’s brief disagreed.

“The CFTC now posits hedging theories for some sports bets that are at best only tenuously connected to reliable hedges of commercial risks. That connection, however, is crucial, as Congress included only those event contracts that hedge risks in a manner similar to a swap and are sufficiently ‘associated with a potential financial, economic, or commercial consequence,'” Gensler’s brief said.