A federal judge blocked Minnesota from enforcing the first state law in the United States to make prediction markets a crime, 5 days before it was due to take effect. Judge Katherine Menendez of the U.S. District Court for the District of Minnesota granted a preliminary injunction on Monday, July 27, 2026, in a 44-page order barring the state from prosecuting exchanges registered with federal regulators. Without it, creating, operating, hosting or advertising a platform like Polymarket in Minnesota would have become a felony on Saturday, August 1, punishable by up to 5 years in prison and a $10,000 fine.
The ruling matters well beyond Minnesota because of the ground it was won on. Menendez did not rule that prediction markets are harmless. She ruled that the contracts traded on them are swaps regulated under the federal Commodity Exchange Act, which means a single state cannot criminalize them on its own. "Plaintiffs have met their burden to show they are likely to succeed on the merits of their express-preemption claims," she wrote. The injunction holds until the case is decided on the merits.
The law that almost landed
Governor Tim Walz signed SF 3432 in May 2026, making Minnesota the first state to answer the growth of prediction markets with criminal law instead of a licensing fight. The statute reaches creating, operating, hosting and advertising a prediction market platform. One carve-out was added before passage: weather trading was pulled out after the agricultural industry pushed back. Minnesota farmers have used weather and crop contracts for decades to hedge a bad season, and the original draft would have swept those up with everything else.
Who actually sued
There were three plaintiffs, and the third is the unusual one. The Commodity Futures Trading Commission, the federal regulator of the derivatives market, sued Minnesota on May 19, 2026, days after the bill was signed. Kalshi brought its own case, and Polymarket followed. A federal regulator suing a state to defend an industry that state wants to jail is not a routine posture, and CFTC Chairman Michael S. Selig put it bluntly: "This Minnesota law turns lawful operators and participants in prediction markets into felons overnight." In the same statement he added that Minnesota farmers "have relied on critical hedging products on weather and crop-related events for decades to mitigate their risks."
The line the judge drew
The most consequential part of the order is not the block itself but where Menendez put the boundary. A contract is a swap, and therefore federally protected, when it turns on an event with "clear potential economic, financial, or commercial consequences." Senate races clear that bar, she found. So does the winner of the World Cup, and the reopening of the Strait of Hormuz. Markets on who wins a reality television show, or on what a commentator says in the middle of a match, likely do not.
That is a line between a financial contract and entertainment, and this time a court drew it rather than the industry. Menendez was explicit that the statute "may not be preempted in all its applications" and that permanent relief could end up "much narrower" than what she granted this week. The platforms won the emergency. They have not yet won the argument.
Minnesota is not the only front
The commission has brought similar suits against Connecticut, Illinois and New York over state restrictions on prediction markets, and filed friend-of-the-court briefs in proceedings involving Arizona and Massachusetts. A federal court in Arizona has already issued an injunction stopping that state from prosecuting prediction market operators under its gambling laws, a characterization the federal courts have not accepted. Minnesota now moves toward a full trial, where the question is no longer whether a state can act in an emergency but whether it can act at all.
