Paradigm Files Amicus Brief to Oppose State Encroachment on Federal Regulation

Yesterday, Paradigm filed an amicus brief in KalshiEX LLC v. Flaherty, urging the U.S. Court of Appeals for the Third Circuit to preserve the CFTC’s exclusive jurisdiction over a broad range of predictive financial instruments. New Jersey’s effort to sidestep Congress’s clear mandate is little more than old wine in a new bottle – an argument courts have rejected time and again.

As Paradigm has noted before, prediction markets translate collective insight into tradable prices, which helps businesses and regular citizens plan for the future. They help Americans anticipate whether inflation will persist. They signal whether AI breakthroughs will arrive sooner than expected. They even indicate whether a particular candidate will capture the White House or New York’s Gracie Mansion.

From weather and commodity prices to elections and sports outcomes, Congress long ago recognized that these contracts belong under one federal umbrella. That’s why it established the CFTC and granted it “exclusive jurisdiction” over “a wide swath of predictive financial instruments.” As we lay out in our brief, there is a trail of evidence decades long that Congress intended to preempt 50-state regulation of these contracts.

That decision was, and remains, eminently sensible. In complex interstate markets, entrusting oversight to a single well-resourced regulator is sound policy. More importantly, it is Congress’s judgment to make, not New Jersey’s.

Over the past century, states have repeatedly tried to encroach on federal financial regulatory turf, only to be rebuffed by Congress and, when necessary, the courts. Early 20th-century state “bucket-shop” laws illustrate the point: they lumped risk-management trades together with illicit gambling, criminalizing any deal that didn’t end with a wagonload of wheat or a bale of cotton physically changing hands.

Congress put an end to the chaos in 1974 with the Commodity Futures Trading Commission Act, which preempted all state gambling codes and imposed a single nationwide regime for contracts traded on CFTC-designated exchanges. The legislative record is unmistakable: hearing after hearing, report after report, lawmakers stressed the need to place all exchanges, and everyone who participates in them, under one coherent federal rulebook.

Congress has reaffirmed its choice repeatedly and unequivocally. The 1978 amendments to the CFTC Act declared that the agency “preempt[s] the field insofar as futures regulation is concerned,” leaving states only general anti-fraud tools. More recently, Dodd-Frank extended the same federal shield to swaps, reinforcing preemption rather than retreating from it despite an obvious opportunity. The message could not be clearer: Congress will not tolerate an ugly patchwork of state laws in an inherently national financial arena.

Kalshi’s event contracts fit comfortably inside Congress’s federal ringfence. New Jersey tries to dodge that reality by insisting that a “swap” must reference something “inherently” financial, a phrase Congress never wrote. The statute covers swaps “associated with” a financial consequence, a broader framing that covers everything from the Super Bowl to rainfall indexes to elections. With ready access to a dictionary, Congress could have taken the states’ side, and chose not to.

Allowing each state to slap its gambling label on federally regulated event contracts would revive the very chaos Congress expressly stamped out. Quite simply, Kalshi’s event contracts are traded on Kalshi’s CFTC‑designated exchange. Under federal law, the inquiry begins and ends there.

The full amicus brief is available here.