The White House is currently considering Josh Sterling, a former senior official at the Commodity Futures Trading Commission (CFTC), to lead the agency. This development follows the stalled nomination of Brian Quintenz, who was originally nominated by President Trump. Sterling is now a partner at the law firm Milbank, representing prediction market operator Kalshi.
From 2019 to 2021, Sterling served at the CFTC, becoming a key figure in legal matters surrounding prediction markets. He has notably defended Kalshi in legal cases against states like Nevada, Maryland, and New Jersey. His outspoken stance on player responsibility was evident this summer during a speech at the National Council of Legislators from Gaming States. Adults have the autonomy to decide how to spend their money, he remarked, and should they face losses, the responsibility lies with them. Sterling also emphasized that the determination of whether event contracts qualify as swaps should be the CFTC’s responsibility, not the judiciary’s.
Sterling’s influence extends beyond Kalshi. Earlier this month, he addressed the CFTC’s inspector general on behalf of the fantasy sports app Sleeper. He alleged that the agency unlawfully obstructed Sleeper’s application to become a futures commission merchant, despite the National Futures Association’s readiness to approve it.
Sterling’s potential leadership at the CFTC comes as the Senate Agriculture Committee has been asked by the administration to halt the consideration of Kalshi director and shareholder Brian Quintenz. Even though Quintenz promised to divest if confirmed, concerns about conflicts of interest persist. His nomination has faced opposition, notably from crypto exchange founders Tyler and Cameron Winklevoss, who were accused by Quintenz of opposing him for personal reasons. Despite support from notable figures such as venture capitalist Marc Andreessen, Quintenz’s chances seem uncertain.
In the backdrop, there are other candidates being considered for the CFTC leadership. Reports by Bloomberg have mentioned that Michael Selig, an official with the U.S. Securities and Exchange Commission (SEC), and Treasury counselor Tyler Williams are also under review. Additionally, SEC chair Paul Atkins has been mentioned, though his candidacy might encounter legal hurdles due to restrictions under the Securities Exchange Act against commissioners holding outside employment.
Simultaneously, prediction markets are confronting their own set of challenges in the legal arena. In Nevada, Crypto.com has initiated a lawsuit to prevent regulators from terminating its sports event contracts. The argument aligns with Kalshi’s stance, claiming exclusive authority of the CFTC over such matters. However, this position is met with opposition from a coalition of 10 tribal organizations and 24 federally recognized tribes. They submitted an amicus brief opposing Crypto.com’s stance, asserting that these contracts fall under “Class III Gaming” as defined by the Indian Gaming Regulatory Act, a category exclusive to tribal operators in certain areas.
The tribal coalition warns that allowing non-tribal entities to offer these gaming products could undermine tribal sovereignty and economic revenue, urging the court to support Nevada’s regulatory position.
Sterling’s potential appointment and the broader challenges faced by prediction markets underscore a period of significant transition and tension within the industry. The debates highlight the complexities of balancing regulatory authority, market innovation, and the interests of various stakeholders, including state and tribal entities.
While some industry insiders view Sterling’s candidacy as a step towards a more assertive regulatory approach, others express concerns about his previous affiliations and the potential for conflicts of interest. Sterling’s track record of defending market operators and challenging regulatory decisions appeals to those seeking to expand market opportunities and limit regulatory constraints. However, opponents argue that his leadership could prioritize market interests over broader regulatory and ethical considerations.
The unfolding situation at the CFTC and the legal battles in the prediction market sector represent a microcosm of the broader regulatory landscape’s challenges and opportunities. As the industry navigates these complexities, the decisions made in these cases will likely have far-reaching implications for market participants, regulators, and stakeholders alike.
The coming months are pivotal as the White House finalizes its decision on CFTC leadership and as courts deliberate on the authority and scope of prediction markets. The outcomes will shape the future of market regulation and influence the balance of power between federal authorities, state regulators, and tribal entities. Observers will keenly watch how these decisions affect the industry’s trajectory and the regulatory environment’s evolution in the United States.
