1. CFTC-State Prediction Market Battle Intensifies with the CFTC Filing a Sixth Circuit Amicus Brief and State Crackdowns Multiplying
The federal-state confrontation over Commodity Futures Trading Commission (CFTC or Commission)-registered prediction markets escalated on multiple fronts in the first half of May. On May 12, the CFTC filed an amicus brief in the U.S. Court of Appeals for the Sixth Circuit in KalshiEx LLC v. Matthew T. Schuler, et al., No. 26-3196, reasserting the Commission’s exclusive jurisdiction over prediction markets and outlining how the comprehensive federal regulatory scheme preempts state laws as applied to CFTC-regulated markets. The Commission framed the filing as “another step in the CFTC’s broader effort to protect its jurisdiction over prediction markets from an ongoing campaign of state encroachment.”
State-level responses accelerated in parallel. On May 13, the Minnesota legislature passed legislation including a prohibition on Kalshi, Polymarket, and similar platforms, sending the bill to Gov. Tim Walz. After Gov. Walz signed the measure, the CFTC sued Minnesota on May 19 to block the law, which would make operating or assisting in the operation of a prediction market a criminal felony, and sought a preliminary injunction to stop the law from taking effect on August 1, 2026. The CFTC characterized the legislation as the most aggressive state move to shut down CFTC-regulated markets to date, emphasizing its reach to weather-related event contracts and other markets used for agricultural hedging. On May 14, Wisconsin Gov. Tony Evers issued Executive Order 294 barring more than 30,000 executive-branch state employees from using any “nonpublic knowledge” obtained through public service to profit on prediction markets, or sharing such information with family members. The order followed Wisconsin’s earlier suit against Kalshi, Robinhood, Coinbase, Polymarket, and Crypto.com and the federal countersuit against the state. Also on May 12, U.S. District Judge William Conley allowed the Ho-Chunk Nation’s Indian Gaming Regulatory Act suit against Kalshi to proceed but denied the tribe’s request for a preliminary injunction barring Kalshi from operating on Ho-Chunk lands. And the tribal-sovereignty theory spread westward on May 13, when New Mexico pueblos — including Isleta and Mescalero Apache — sued Kalshi in federal court, asserting that the platform’s sports event contracts violate tribal gaming sovereignty.
Federal pressure mounted in parallel. On May 18, Citizens for Responsibility and Ethics in Washington (CREW) submitted a letter to the U.S. Office of Government Ethics urging both a comprehensive ban on prediction-market betting by all executive-branch political appointees and career officials required to submit public financial disclosure reports and a prohibition on all career employees placing bets related to political or military events. CREW pointed to a recent BBC analysis identifying consistent trading spikes on Kalshi and Polymarket hours or minutes before major presidential announcements — including bets on the timing of U.S. airstrikes in Iran, the ouster of Ayatollah Ali Khamenei just before his assassination, and oil-price moves preceding an Iranian ceasefire — with many bets placed by new accounts with little or no other trading history, a pattern CREW characterized as potential insider trading. On the same theme, Rep. Chris Pappas (D-N.H.) called on the Department of Justice (DOJ) to investigate and prosecute suspected insider trading on prediction markets, following his successful push for a House investigation. Pappas also flagged concerns about consistency in enforcement given DOJ’s reported July 2025 decision to drop its criminal investigation into Polymarket (which previously paid a $1.4 million civil penalty under a 2022 settlement for operating as an unregistered platform), and he continues to advance the Public Integrity in Financial Prediction Markets Act of 2026 (H.R. 7004), which would bar members of Congress and government employees from trading on political prediction markets when they have or could obtain inside information through their jobs. The CFTC’s Sixth Circuit amicus press release is available here; the CFTC’s Minnesota lawsuit press release is available here; Selig’s FINRA remarks here; Wisconsin Executive Order 294 here; the Ho-Chunk Nation v. Kalshi order here; CREW’s letter to the Office of Government Ethics here; and Rep. Pappas’s press release here.
2. Bitcoin Fog Appeal Tests DOJ Theory of Extraterritorial Reach Over Global Money Transmitter Services
On May 12, the U.S. Court of Appeals for the D.C. Circuit heard oral argument in the appeal of Roman Sterlingov, the alleged operator of Bitcoin Fog — a crypto-mixing service that prosecutors say moved hundreds of millions of dollars tied to dark-web markets. Sterlingov was convicted in 2024 of money-laundering conspiracy and operating an unlicensed money-transmitting business under 18 U.S.C. § 1960; the appeal directly tests how far U.S. money-transmission and venue laws extend to internet-based crypto service platforms operated abroad. The argument focused on two issues of broad significance to the financial services bar. First, on venue, defense counsel Tor Ekeland argued that the government “manufactured” venue in the District of Columbia by having undercover agents use Bitcoin Fog from within the district, warning that “if this is the standard for venue in internet cases, then any government agent can just unilaterally send a message to any website anywhere in the world.” The panel pressed prosecutors on whether a handful of undercover transactions in D.C. were enough to establish venue, while DOJ attorney Jenny Ellickson countered that Bitcoin Fog knowingly operated an international money-transmission business serving U.S. users and was therefore subject to U.S. (and D.C.) law. Second, the panel scrutinized the reliability of the “IP overlap” forensic analysis used to link Sterlingov to Bitcoin Fog, an issue with substantial spillover for any prosecution that relies on chain analysis or attribution heuristics rather than direct evidence of operator identity.
The appeal lands amid a contentious battle over how aggressively U.S. prosecutors can pursue developers and operators of crypto privacy tools under Section 1960, the same statute used against Tornado Cash developer Roman Storm. Notably, the latest draft of the CLARITY Act would narrow Section 1960 liability to persons acting with “specific intent and knowledge” to help move criminal funds — a revision Coin Center, the leading non-profit focused on the policy issues facing cryptocurrencies, has publicly backed as a meaningful constraint on overbroad prosecutions, though intent- and knowledge-based standards remain susceptible to expansive prosecutorial interpretation. A recording of the oral argument is available here.
3. SEC Advances Capital-Formation Agenda With Semiannual Reporting Proposal and Rescission of 50-Year-Old “No-Deny” Policy
The Securities and Exchange Commission (SEC or Commission) took two significant actions across the first half of May spanning interim disclosure and settlement policy. First, on May 5, the SEC proposed rule and form amendments that would give public companies the option to file semiannual reports on a new Form 10-S in lieu of quarterly reports on Form 10-Q, satisfying their interim Exchange Act Section 13(a) and 15(d) reporting obligations through one semiannual and one annual report per fiscal year. Chairman Paul S. Atkins stated that “the rigidity of the SEC’s rules has prevented companies and their investors from determining for themselves the interim reporting frequency that best serves their business needs and investors,” and that the proposed amendments “would provide companies with increased regulatory flexibility in this regard.” The proposal — which advances the Atkins-led “Make IPOs Great Again” capital-formation agenda by directly reducing public-company interim reporting burden — will be open for public comment for 60 days following Federal Register publication.
Second, on May 18, the SEC rescinded the policy codified in Rule 202.5(e) of its informal rules of procedure that, for more than 50 years, conditioned settlement of any enforcement action imposing sanctions on the defendant’s or respondent’s agreement not to publicly deny the allegations in the complaint or administrative order. Atkins stated, “Speech critical of the government is an important part of the American tradition. This recission ends the policy prohibiting such criticism by settling defendants.” The Commission explained that the change aligns the SEC with the “overwhelming majority of federal agencies that do not have a similar rule,” provides settlement flexibility that conserves Commission resources and may expedite the return of money to injured investors, and addresses concerns that the prior rule “may have created an incorrect impression that the Commission is trying to shield itself from criticism.” Importantly for in-place consents, the Commission stated it will not enforce existing no-deny provisions and will take no action — in district court or in any adjudicatory proceeding — to vacate or reopen a settlement based on a defendant’s breach of an existing no-deny provision. The Commission noted that there is no known instance of it ever having sought to reopen a proceeding for a no-deny violation, and emphasized that the rescission does not affect the SEC’s separate practice on admissions or its discretion to negotiate for admissions as part of any settlement. The SEC’s semiannual reporting press release is available here; the SEC’s no-deny rescission press release is here.
4. OCC Finalizes Interest-on-Escrow Preemption Rules and Advances Community Bank Burden Reduction
On May 15, the Office of the Comptroller of the Currency (OCC) issued two final rules on the real estate lending powers of national banks, framing federal preemption as “a critical tool for reducing unnecessary burden, enabling local and national prosperity, and unleashing economic growth.” OCC Bulletin 2026-20 codifies the long-standing power of national banks to establish and maintain real estate lending escrow accounts and to exercise business judgment flexibility on the terms of those accounts, including whether and to what extent to pay compensation to customers or assess related fees. OCC Bulletin 2026-21 separately issues a final preemption determination concluding that federal law preempts state laws restricting the flexibility of OCC-regulated banks to pay interest on or assess fees in connection with real estate escrow accounts — specifically preempting New York’s interest-on-escrow law and 13 other substantively equivalent state and territorial laws, with the final rule adding Guam and the U.S. Virgin Islands to the preempted list. The OCC commended the Second Circuit’s recent decision concluding that federal law preempts New York’s interest-on-escrow regime, noting that the court cited the proposed version of the rules now being finalized.
On May 18, the OCC followed with News Release 2026-38, in which Comptroller Jonathan V. Gould announced continued supervisory and regulatory reforms to reduce the burden on community banks. Building on January 1, 2026 guidance that eliminated policy-driven examination requirements for Community Reinvestment Act performance, fair lending, end-user derivatives, and trading in favor of risk-tailored exams, the OCC has now directed examiners to use an updated resource to narrow the scope of bank information technology and cybersecurity examinations at community banks. OCC News Release 2026-37 is available here; Bulletin 2026-20 here; Bulletin 2026-21 here; and News Release 2026-38 here.
5. USDA Revokes OneRD Guaranteed-Lender Status of 10 Lenders
On May 12, USDA Secretary Brooke Rollins announced the removal and ban on further participation of 10 lenders from the USDA Rural Development OneRD Guaranteed Lending Program, stating that “the Trump Administration has absolutely no tolerance for the irresponsible and noncompliant actions of these lenders.” The OneRD Guaranteed Lending Program consolidates the underwriting and servicing requirements of four USDA Rural Development loan guarantee programs and provides federal guarantees of up to 80 percent of principal and interest on commercial bank loans for eligible rural projects, allowing private lenders to extend into rural markets larger, longer-tenor credits than they could underwrite on a fully unguaranteed basis. According to USDA, their removed lender portfolios collectively hold approximately $620 million in delinquent loans — roughly 47 percent of Rural Development’s total delinquent loan volume — a striking concentration that USDA cited as the basis for invoking program integrity authority to debar the institutions. Several of the named lenders had been among the most prolific OneRD originators in recent years, particularly in the B&I segment, and their removal materially reshuffles competitive dynamics in the program. The USDA press release is available here.
