Minnesota Law Banning Prediction Markets Creates Victimless Crime
A Minnesota senator got fined for insider trading on a prediction market. His response was to ban the platforms for everyone in the state.
Last October, Minnesota state Sen. Matt Klein (D–Mendota Heights) wagered $50 on the prediction market Kalshi that he would win his congressional primary this August. After Kalshi flagged the bet, Klein was fined $539.85 and received a five-year suspension from the platform in April.
While he tried to frame his experience as similar to that of "many other Minnesotans," there should have been no ambiguity to Klein that his actions ran afoul of Kalshi's rules and federal regulations against insider trading. Rediscovering his morals, Klein then co-authored a bill in the Minnesota Legislature to ban prediction markets in the state, making it a felony for anyone to create, control, operate, support, or advertise with a prediction market.
On Monday, Democratic Gov. Tim Walz signed the bill into law, making Minnesota the first state to issue an outright ban on the platforms. The law draws the state into an ongoing feud between the U.S. Commodity Futures Trading Commission (CFTC), which is the federal agency that regulates prediction markets, and states that have chosen to prohibit their use.
While Minnesota is not the first state to restrict access to prediction markets (Nevada, for instance, has a court-imposed restraining order against prediction markets), it is the first to ban these platforms and criminalize participation in the industry altogether.
The state's ban covers prediction markets tied to sporting events, casino games, the actions of an individual or group, elections, disasters, both human and natural, and death. It originally included "weather events or conditions," but that provision was removed after lawmakers realized it would criminalize farmers for hedging against unexpected price drops.
In response to Minnesota's ban, the CFTC has filed for a preliminary injunction with the U.S. District Court for the District of Minnesota.
As Reason has covered, after Arizona, Connecticut, Illinois, New Jersey, Massachusetts, and Wisconsin pursued legal action against prediction markets, the CFTC countersued, arguing that the Commodity Exchange Act gives it "exclusive jurisdiction" to regulate financial markets, including prediction markets, which are more akin to stock exchanges than traditional gambling platforms like FanDuel or DraftKings.
The CFTC has also filed amicus briefs in the U.S. Court of Appeals for the 9th Circuit and the Supreme Judicial Court of Massachusetts in support of prediction markets. CFTC Chairman Michael Selig says the law "turns lawful operators and participants in prediction markets into felons overnight." He's right.
Under the law's prohibition on promoting transactions, a Minnesota resident who "advertises or markets" the use of prediction markets, even to non-Minnesota residents, could be charged with a felony. The law would also turn proprietors of legitimate businesses, such as age- and ID-verification sites, into felons for contracting with prediction markets.
According to the state's Sentencing Guidelines Commission, anyone found guilty of violating the ban on prediction markets could receive probation, up to a year in jail, or "other non-jail sanctions."
Tellingly, the law fails to identify a victim. Prediction markets do nothing more than facilitate transactions between willing consumers. Yet, Minnesota's law would place violators on the same criminal tier as anyone guilty of assault in the second degree or simple robbery.
The bill's definition of prediction market is also broad enough that it could potentially include participation in systems like the Iowa Electronic Markets model, an online futures market that pays out contracts on events banned under the law, such as political outcomes.
Elisabeth Diana, head of communications at Kalshi, tells Reason Minnesota's law is "unconstitutional." Instead of regulated platforms like Kalshi, Polymarket, and Robinhood, she says the state's law would force consumers to use "unregulated offshore markets where there are no consumer protections."
While the company isn't planning any legal action against Minnesota, Diana says the CFTC is "rightfully" suing the state to bring it into compliance with federal law. A spokesperson for Polymarket also called into question Minnesota's standing to issue a ban, saying the state's action "runs counter to the federal government's established framework for regulating prediction markets as evidenced by the lawsuit from the CFTC."
State. Sen. John Marty (D–Roseville), the bill's author, might have given away the game when he cited dramatic cuts "into the revenue of Minnesota's regulated gambling" as reasons for banning platforms like Kalshi and Polymarket.
Sens. Marty and Klein did not respond to Reason's request for comment.
Minnesota adults can understand the risk of financial loss associated with prediction markets; the ban seems nothing more than a paternalistic approach to governing, turning law-abiding residents into criminals for engaging in legal conduct.