Novig is using federal court to test whether the Commodity Exchange Act leaves prediction market oversight solely with the Commodity Futures Trading Commission. The company filed lawsuits against New York, Massachusetts, New Mexico and Washington in early August 2026, shortly after receiving CFTC designation as a contract market, according to ReadWrite. Washington has since asked a federal judge to dismiss its case, according to a filing reported by RG, citing a Ninth Circuit ruling that state gambling laws are not preempted.
Four lawsuits follow CFTC market designation
Ludlow Exchange LLC, doing business as Novig, received CFTC approval as a designated contract market on June 16, 2026, according to its Washington complaint. The company filed suit against New York on August 5 and against Massachusetts, New Mexico and Washington between August 6 and August 8, 2026. The complaints ask courts to declare state gambling laws preempted as applied to event contracts traded on Novig's exchange and to bar state officials from enforcing those laws. According to legal analyst Daniel Wallach, all four states had already sought temporary restraining orders or preliminary injunctions against federally regulated prediction markets in state court.
Preemption claim centers on swaps
Novig argues that sports event contracts traded on its exchange qualify as swaps under the Commodity Exchange Act, placing them under CFTC exclusive jurisdiction. The company's complaints cite the Third Circuit's decision in KalshiEX LLC v. Flaherty as supporting that view. In Washington, Novig asked the court to block enforcement of the state Gambling Act, Consumer Protection Act and Recovery of Money Lost at Gambling Act, among other laws, and to declare them preempted as applied to its contracts. The company also pointed to safeguards such as a minimum age of 21, deposit and trading limits, self-exclusion tools, identity verification and market surveillance.
Washington moves to dismiss
Attorney General Nick Brown and the Washington State Gambling Commission filed a motion to dismiss on October 19, 2026, in the U.S. District Court for the Western District of Washington. The state argues the Ninth Circuit's August 28, 2026 decision in KalshiEX v. Assad already resolved the preemption question: the Commodity Exchange Act neither expressly nor impliedly preempts state gambling law as applied to sports prediction markets. The motion quotes the appeals court as saying, "The substance of the sports event contracts offered on Kalshi's DCM is sports gambling, regardless of whether Kalshi calls them swaps." Washington says Novig itself alleges no distinction between its sports contracts and Kalshi's, making the ruling binding. The state argues sports event contracts are not swaps, and that the 2010 Dodd-Frank law "was not a bill to regulate gambling."
CFTC rulemaking and split courts
The Washington motion does not discuss the CFTC's October rulemaking, according to the filing. A CFTC interim rule excluding wagers accepted by state-licensed sportsbooks from the swap definition took effect October 19, 2026, alongside a proposal to classify event contracts as swaps. Comments on both are due November 18, 2026. Washington says two of three federal appeals courts to rule on the issue and a majority of federal district courts have found states may enforce gambling laws against prediction markets, while the Third Circuit and courts in Illinois and Minnesota have reached contrary conclusions.
Novig's claims of harm
Novig argues that without federal intervention it faces civil and potentially criminal penalties in the states. In Washington, it says the state could seek restitution, disgorgement, civil penalties and criminal sanctions similar to those pursued against Kalshi. In Massachusetts, it argues possible civil fines, criminal penalties and injunctive relief; in New Mexico, public nuisance claims plus civil and criminal liability. The company says state enforcement creates irreparable harm because sovereign immunity would prevent it from recovering losses even if it ultimately prevailed.
