Polymarket issued cease-and-desist by Tennessee amid regulatory scrutiny

Tennessee's Sports Wagering Council (SWC) has taken significant action against prediction market platforms, issuing cease-and-desist letters to Polymarket, Kalshi, and Crypto.com's North American Derivatives Exchange. The letters, dated January 9, 2026, demand that these platforms immediately halt offering sports event contracts to Tennessee residents, void all pending contracts, and return customer deposits by January 31, 2026. Failure to comply may result in escalating fines, criminal prosecution, and other legal measures.

SWC Executive Director Mary Beth Thomas stated in the letter to Polymarket, "The sports events contracts offered on Polymarket's exchange are not compliant with these [Tennessee state consumer] protections (and many others) and are an immediate and significant threat to the public interest of Tennessee." Similar language was used in correspondence sent to Kalshi and Crypto.com.

State and federal legal tension

All three platforms targeted by the SWC are federally registered with the Commodity Futures Trading Commission (CFTC) as designated contract markets. This federal designation allows them to offer event-based derivatives contracts nationwide. However, the platforms have argued that CFTC oversight preempts state-level gambling regulations, a legal position that has seen mixed results in federal courts.

The SWC's enforcement measures include fines of $10,000 for a first violation, increasing to $15,000 and $25,000 for subsequent offenses, as outlined in the Tennessee Sports Gaming Act. Additionally, the letters warn of potential criminal charges, including Class B misdemeanor or Class E felony charges for aggravated gambling promotion, with violations referred to law enforcement for further investigation.

Broader pushback against prediction markets

Tennessee’s regulatory action is part of a broader nationwide push against prediction market platforms. According to the source, Tennessee is at least the ninth state to formally challenge these platforms over sports-related offerings. The state has expressed ongoing concerns about the lack of compliance with consumer protection laws, including age restrictions, anti-money laundering controls, and responsible gaming requirements.

Tennessee has been vocal about these concerns for months. In April 2025, the SWC submitted a letter to the CFTC urging it to prohibit sports event contracts on federally regulated platforms. Thomas later addressed the Tennessee State Funding Board in November, warning that prediction markets posed a competitive threat to state-regulated sportsbooks and their associated tax revenue, which contributes to education funding.

Industry response and platform activity

The Tennessee action marks the first publicly disclosed instance of Polymarket facing state-level enforcement since its November relaunch in the United States. Although Polymarket began opening its U.S. app to waitlisted users in December, the platform’s broader launch remains pending. Currently, Polymarket only offers sports event contracts to U.S. users.

Kalshi, Polymarket, and Crypto.com have not publicly commented on the SWC's actions. However, gaming attorney Daniel Wallach, who published the letters on social media, suggested that lawsuits are likely, stating that "lawsuits are imminent."

Federal and state legal disputes over prediction markets are not new. Tennessee Attorney General Jonathan Skrmetti, who was copied on the cease-and-desist letters, has been active in related legal matters. Skrmetti joined 37 other attorneys general last month in an amicus brief supporting Maryland in its legal battle with Kalshi. He also participated in a June 2025 brief with 33 other attorneys general, challenging a federal court ruling favorable to Kalshi.

As legal battles unfold, both Polymarket and Kalshi continue to see growth in their trading volumes. Polymarket notably made its U.S. return after acquiring derivatives exchange QCX in mid-2025 for $112 million.

Tennessee’s regulatory crackdown highlights the growing tension between state gambling authorities and federally regulated platforms, raising questions about how prediction markets will navigate the complex legal landscape moving forward.

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