Illinois Hands Kalshi, Coinbase, and CFTC Win in Federal Court

• Illinois federal court grants preliminary injunction motions to Kalshi, Coinbase in the state
• Court reports contracts at issues are likely swaps defined by the Commodity Exchange Act
• Decision creates an intra-circuit split with Wisconsin federal court

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The U.S. District Court for the Northern District of Illinois Eastern Division granted motions from Kalshi, Coinbase, and the Commodity Futures Trading Commission for a preliminary injunction against the state to prohibit Illinois from enforcing its gaming laws against prediction markets.

Judge Martha M. Pacold granted the motion on Friday, Oct. 2, creating an intra-circuit split with the U.S. District Court for the Eastern District of Wisconsin. The Wisconsin federal court denied a Commodity Futures Trading Commission’s (CFTC) motion in July for a preliminary injunction in the Badger State.

Pacold’s ruling allows the prediction market operators to continue offering sports event contracts in the state, but also seemingly supported the legality of the Illinois decision to tax operators for their contracts.

Event Contracts Likely Swaps

At issue at most of the lawsuits regarding state gambling laws and prediction operators is the basic question of whether or not event contracts can be qualified as “swaps” under the Commodity Exchange Act (CEA).

Pacold’s ruling determined event contracts are “most likely” swaps under the CEA and the plaintiffs have demonstrated they will be “irreparably harmed” without a preliminary injunction.

“Many of the financial instruments at issue are likely swaps as defined by the Commodity Exchange Act—they just happen to be swaps that people find entertaining and fun. Under the Act and precedent interpreting it, some Illinois law is likely preempted. Plaintiffs are therefore likely to succeed—at least in part. Plaintiffs have also demonstrated that they will be irreparably harmed without an injunction, and that the other equitable factors favor issuing an injunction,” Pacold wrote.

Beautiful. pic.twitter.com/8qFF0LGP9Q

— Luana Lopes Lara (@luanalopeslara) October 2, 2026

The plaintiffs, Pacold noted, demonstrated that Kalshi is a designated contract market, that its sports event contracts are swaps, and that Illinois is likely attempting to “exercise control over Kalshi’s sale of those ‘swaps’.” Much of Illinois law also likely conflicts with the CEA and is likely preempted as well.

While Pacold did grant the preliminary injunction motion, she also noted that the Illinois tax for prediction market operators may be different than trying to regulate an entire market.

Illinois lawmakers approved the state’s $55.9 billion FY27 budget in July, which included a new tiered tax rate for prediction market operators. Prediction market operators are required to pay a transaction tax equal to 1.75% for each exchange wager. After the first five million exchange wagers conducted by a prediction market operator during a fiscal year, the transaction tax will increase to 3.5%.

However, prediction market operators and the CFTC have balked at the tax. Pacold’s ruling sets the precedent that the tax may be acceptable.

“The transaction fees might pose no necessary conflict just because they cause indirect economic effects on Kalshi and its users. The other laws Illinois seeks to enforce cause a conflict because they regulate what can be sold, as well as where it can be sold and to whom. Taking a cut of Kalshi and Coinbase’s profits, without more, might not pose the same conflict as regulating an entire market,” she reported.

Intra-Circuit Split

The U.S. District Court for the Northern District of Illinois Eastern Division’s ruling creates an intra-circuit split with the U.S. District Court for the Eastern District of Wisconsin. The court denied the CFTC’s motion for a preliminary injunction in Wisconsin, ruling that event contracts likely do not reach the definition of a swap and federal law does not preempt Wisconsin gaming laws.

“Finally, because the CFTC has failed to show that it is likely to prevail on the merits of its argument, that it will suffer irreparable harm, or that the balance of equities favors it, its motion for a preliminary injunction enjoining the State from enforcing its gambling statute (Dkt. No. 6) is denied,” U.S. District Judge William C. Griesbach wrote in his decision.

The CFTC appealed the decision with the U.S. Court of Appeals for the Seventh Circuit. Illinois officials may appeal the recent U.S. District Court for the Northern District of Illinois Eastern Division’s decision in the Seventh Circuit Court of Appeals as well.