Crypto.com and Novig Sue Missouri Officials Over Enforcement of Sports Event Contracts
According to The Block, Crypto.com and the CFTC-registered exchange North American Derivatives Exchange, along with Novig (operated through its exchange operator Ludlow Exchange), filed lawsuits on October 16 in the federal courts of the Western and Eastern Districts of Missouri against state officials led by Attorney General Catherine Hanaway.
The plaintiffs seek to prohibit the state from enforcing its sports betting laws on their sports event contracts, arguing that the Commodity Exchange Act grants the CFTC exclusive jurisdiction, which takes precedence over state gambling laws.
The lawsuit points out that the Missouri Constitution only allows for two mobile sports betting licenses, both of which have been issued, making further applications impossible, and that a cease-and-desist order was mistakenly issued to the relevant entities.
Hanaway had issued cease-and-desist orders to six companies in mid-September, requiring them to stop offering sports event contracts to users in the state or to obtain licenses and pay a 10% gambling tax within 30 days, a deadline that has now passed.
Kalshi, Polymarket, Robinhood, and Underdog, which also received cease-and-desist orders, have not yet filed lawsuits in Missouri.
From a market perspective, the lawsuit aims to maintain the operation of prediction markets within the state through federal preemption, with funds and user flows advocating for CFTC jurisdiction, while state enforcement faces jurisdictional challenges, and other non-sued platforms are observing the outcomes.
Additional information indicates that Novig is requesting a preliminary injunction during the lawsuit to maintain the status quo, due to discrepancies in federal appellate court rulings regarding the issue of preemption.
Source: Public Information
ABAB AI Insight
Prediction market platforms have long argued that sports event contracts fall under the CFTC's regulation as swaps or derivatives, with historical challenges in multiple states, including Kalshi, against state gambling laws, where some federal courts have supported preemption while others have rejected it.
The capital strategy reflects seeking injunctions through federal lawsuits to avoid state licensing and tax requirements, shifting resources from compliance costs to legal challenges to maintain interstate operational capabilities.
Similar cases include lawsuits following cease-and-desist orders issued by other state attorneys general against prediction markets, as well as multiple rulings on the conflict between commodity laws and state gambling laws, with current prediction market regulation in an expanding phase of federal and state jurisdiction disputes.
Essentially, this is a regulatory change: state enforcement attempts to bring event contracts into the gambling framework, applying pressure through cease-and-desist orders and licensing requirements, while platforms defend against this with claims of exclusive CFTC jurisdiction, the outcome of which will affect the legal boundaries of interstate prediction markets.
ABAB News · Cognitive Law
- Federal exclusive jurisdiction can take precedence over state law, but courts differ in their decisions on applicability.
- After the cease-and-desist order deadline, litigation becomes the path to maintain operations.
- When the number of licenses is limited, the federal framework becomes an alternative for entry.