A federal judge in Michigan issued a forceful judgment Wednesday against Polymarket, ruling that sports-related prediction market wagers do not constitute swaps under the CFTC’s jurisdiction.
A U.S. District Court judge in the Western District of Michigan denied Polymarket’s request for a preliminary injunction against Michigan regulators, who seek to restrict the prediction market platform from offering sports-related wagers in the state. The state says such wagers constitute illegal sports betting, while Polymarket claims they should be considered swaps under the federal purview of the CFTC.
In denying Polymarket’s preliminary injunction, Judge Paul L. Maloney made clear his belief that the company is not likely to succeed on the merits of the case. He also said explicitly that Polymarket’s sports-related wagers are not swaps, and therefore should not be regulated by the CFTC.
Judge Maloney poured cold water on the CFTC’s legal posturing in Wednesday’s ruling.
“Plaintiff’s vision of the scope of derivatives is so vast that it would encompass vast swaths of activity never understood to be associated with the financial industry and instead traditionally associated with core state, as opposed to federal, responsibilities,” Maloney said.
“Congress is not so cavalier with the fundamental federalist structure of the government,” he continued. “[T]he Court is convinced that its laws in the wake of the 2008 financial crisis were not aimed at fundamentally redefining the balance between the federal and state governments in ways unrelated to the problems it set out to solve.”
The Sixth Circuit Court of Appeals is set to begin deliberating the matter later next month, now that two courts under its purview have sided with state regulators, and one with prediction markets and the CFTC. The matter is likely to ultimately be decided in coming years by the U.S. Supreme Court.
