In my last column, I wrote about the Third Circuit’s divided opinion siding with Kalshi regarding its contracts being swaps, and the Ninth Circuit’s apparent skepticism regarding Kalshi’s position just ten days later. I suggested that the central question, whether event contracts are swaps under the Commodity Exchange Act, cannot readily be answered by reference to the plain text of the CEA.
Since then, the fight over prediction markets has intensified and the path to the Supreme Court looks shorter by the week. On July 30, 2026, a three-judge panel of the Sixth Circuit heard consolidated oral arguments in challenges that the states of Ohio and Tennessee had brought against Kalshi, and the judges did not sound friendly to the idea of treating prediction event contracts as swaps. The day after, on July 31, a former special forces soldier named Gannon Van Dyke filed a motion to dismiss his criminal indictment in the Southern District of New York, arguing that the Polymarket event contracts at the heart of the government’s case are not swaps at all. Together, these developments illustrate twin poles of the prediction market debate: the civil question of who gets to regulate these prediction market contracts, and the criminal question of what happens when someone allegedly misuses them.
The Sixth Circuit: “Why Are You So Disparaging of State Regulators?”
The Sixth Circuit argument arrived in an unusual posture. The court heard consolidated appeals from two conflicting lower-court rulings within its own circuit. In February 2026, a federal judge in the Middle District of Tennessee sided with Kalshi, granting a preliminary injunction preventing individual state officials from bringing an enforcement action, based principally on federal preemption grounds, after finding that the company’s sports event contracts likely qualify as swaps under the CEA. Weeks later, a federal judge in the Southern District of Ohio reached the opposite conclusion, ruling that Kalshi had not shown its contracts qualify as swaps, and denying an injunction that would have prevented state officials from enforcing state law against the company.
At the oral argument on appeal, Judges Eric Clay, Rachel Bloomekatz, and Julia Gibbons spent almost an hour pressing the lawyers, and the questioning suggested skepticism of Kalshi’s position. Judge Clay did most of the talking, and seemed skeptical from the start. He jumped immediately to the core issues, including exclusive jurisdiction, the CEA’s savings clause, and whether these products involve gambling.
At one point, Judge Clay noted that “regulation of gambling is usually a state responsibility” and asked Kalshi’s attorney a pointed question: “Why are you so disparaging of state regulators and state policymakers?” When Kalshi’s counsel argued that Congress, not Kalshi, had vested authority in the federal government, Judge Clay appeared unconvinced: “I don’t know if Congress has said all that.”
Judge Bloomekatz dug further into the details, asking whether Kalshi’s interpretation of the CEA meant that every event contract would have to be traded on a designated contract market (because trading swaps outside of a designated contract market is unlawful under the CEA), which appears to be a logical implication of Kalshi’s position that the panel seemed to find troubling.
The states relied on arguments that appear to have gained traction in other circuits. Ohio’s Solicitor General told the panel that if Kalshi’s reading of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (which made the CFTC the principal federal regulator of the U.S. swaps market) is correct, the implications are “rather extraordinary” because it would mean that sports bets qualifying as swaps should have been occurring on federally regulated exchanges since roughly 2010, and we all just missed it. Tennessee’s Assistant Attorney General described Kalshi’s products as “classic parimutuel wagering,” a form of peer-to-peer gambling that states have regulated for centuries.
The states also returned to the kind of hypothetical that has haunted Kalshi across courtrooms: What about contracts that link together sports and prediction markets, such as the number of corner kicks in a soccer match, or granular player propositions? Tennessee argued these contracts are “well outside of the financial risk context” that Dodd-Frank was designed to address. Kalshi’s answer was essentially that drawing those lines is the CFTC’s job, and that courts should not treat individual examples as dispositive because sports in 2026 are a “huge business,” with economic consequences extending through sponsors, networks, and advertisers.
Both Ohio and Tennessee hammered another point–that Kalshi’s preemption argument would mean that all sports bets must be traded on a designated contract market, and if they are not, the bettors are committing federal felonies. The panel seemed to find this scenario striking.
In rebuttal, Kalshi warned that abandoning preemption would be a “sea change” in settled law dating to 1974, and that the states’ position would mean they could also regulate “classic commodities.”
No decision has been made yet, and questions at oral argument are, of course, not necessarily indicative of how a court will rule. But if the Sixth Circuit sides with the states, it could join the Ninth Circuit’s apparent skepticism and create a split with the Third Circuit. The path to the Supreme Court may be shorter than anyone expected.
The Van Dyke Motion: Can You Commit Insider Trading on a Prediction Market?
While the civil litigation asks who regulates prediction markets, the Van Dyke case asks a more pointed question: Can you commit insider trading in those markets?
The facts are dramatic. In April 2026, the Southern District of New York unsealed an indictment charging Master Sergeant Gannon Ken Van Dyke, an active-duty special forces soldier stationed at Fort Bragg, with making more than $400,000 in Polymarket wagers based on classified information about the U.S. military operation to capture then-Venezuelan President Nicolás Maduro. According to prosecutors, Van Dyke created a Polymarket account the day after Christmas 2025 and placed thirteen bets on Maduro- and Venezuela-related contracts, purchasing approximately $33,000 in “YES” shares on outcomes such as “U.S. forces in Venezuela … by January 31, 2026” and “Maduro out by … January 31, 2026.” When those contracts resolved in his favor, his profits exceeded $400,000.
Then-U.S. Attorney Jay Clayton called it “clear insider trading.” Van Dyke pleaded not guilty.
The five-count indictment charges violations of the CEA (unlawful use of confidential government information, theft of nonpublic government information, and commodities fraud), wire fraud, and money laundering. On July 31, Van Dyke’s defense team filed a motion to dismiss the indictment, and the arguments are wide-ranging.
The defense’s core argument is simple: the government’s case rests on the premise that Polymarket event contracts are “swaps” under the CEA, but in fact they are not. The motion calls this the government’s position a “novel, never before prosecuted” theory and asks the court to “end the government’s experiment now.”
The statutory argument will be familiar to anyone following the Kalshi litigation. Van Dyke’s lawyers contend that the CEA’s definition of “swap” should be read narrowly, consistent with the rest of the statute’s references to financial instruments like interest-rate swaps, currency swaps, and commodity swaps. Geopolitical event wagers, they argue, are not “inherently joined or connected” to a financial consequence the way traditional swap instruments are. And the defense marshals the same string of district court decisions—from Nevada, Ohio, and Michigan—that have rejected broad readings of the definition of swaps in context of sports-event contracts.
The defense motion also adds a textual argument specific to the Van Dyke contracts that has not featured prominently in the Kalshi cases. Unlike traditional swaps, the defense argues, the Polymarket contracts at issue do not resolve against an objective, external reference point. A weather swap, for example, settles against temperature data from the National Weather Service. An interest-rate swap settles likewise settles against an objective outcome, in the form of published financing rates. But the “Will the U.S. invade Venezuela” contract requires “a consensus of credible reporting”—a subjective, deliberative judgment by interested market participants about what the United States “intended.” That, the defense contends, is fundamentally different from a regulated derivative.
The defense attorneys in Van Dyke further argue that even if the CEA could conceivably reach these wagers, it is too vague to support a criminal prosecution. Courts are split on whether event contracts are swaps; Congress has introduced twelve new bills to address prediction market trading, which would be unnecessary if the CEA already covered the conduct; and the CFTC and SEC have jointly acknowledged that the regulatory lines are unclear. Given that Congress, agencies, and courts have all find the definition of swaps ambiguous, the defense asks, how can “ordinary people” have fair notice that prediction market wagers are covered by the CEA?
The motion also takes a swing at the government’s insider trading theory. Neither CEA Section 6(c)(1) nor CFTC Rule 180.1 expressly prohibits insider trading, the defense argues—they are “carbon copies” of Securities Exchange Act Section 10(b) and Rule 10b-5, which themselves do not mention insider trading on their face. Insider trading liability under the securities laws was built by courts over decades of common-law development. Importing that judicially constructed body of law wholesale into a distinct statute, the defense contends, would create a new federal common-law crime.
Some of these arguments could be challenging to resolve on a motion to dismiss due to fact issues, including what exactly a Polymarket contract is and how Polymarket’s prediction market functions. Still, the arguments reinforce the lack of certainty in the regulation of prediction markets.
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In the civil cases, the Third Circuit remains the only appellate court to have sided with Kalshi, and the two circuits that have heard arguments appear potentially poised to go the other way. Notably, just last week, the CFTC announced that two of its divisions had sent a letter to prediction markets, warning them that their platforms should not resemble sportsbooks, which is perhaps an attempt by the CFTC to insulate its enforcement efforts from court scrutiny.
In the criminal case, the Van Dyke motion could force the Southern District of New York to confront the same definitional question in a different context, one where the stakes are not regulatory turf but personal liberty, and where the rule of lenity and due process principles demand clarity that the statute may not provide.
Should the Supreme Court sort all of this out as soon as possible? [YES]