Swap or Bet White-Collar Crime · Crime Lab 11 · Midwestern State University
A contract that pays $1 if the Cowboys beat the Eagles on Sunday and nothing if they do not is, under the Commodity Exchange Act, a swap, and under the Texas Penal Code, a bet. Which word applies decides who regulates it, whether an 18-year-old in Wichita Falls can buy it, and whether anyone has committed a crime. In 2025 and 2026 that question moved from a law review note to a fight between one federal agency and most of the states: cease-and-desist orders, nine federal suits by the agency against states, a divided appeals court, a $36 billion state lawsuit, and an emergency order telling a company to keep operating in a state that had ordered it to stop. This lab has you classify a dozen real products under the competing definitions, follow who decided what and when, and then ask the question the readings ask: when a government chooses the definition that lets an industry operate, and the industry is built to keep people playing, whose crime is it?
The same contract, three ways
An event contract on a prediction market is priced between $0 and $1 and pays $1 if the event happens; ten contracts bought at 35 cents return $6.50 in profit if the buyer is right (Saunders 2026, p. 654). Whether that is a derivative or a wager depends on which statute you read.
Why it matters who wins the word. If the contract is a swap, the exchange answers to one federal agency, pays no state gaming tax, faces no state licensing, sells in all fifty states including the ones with no legal sports betting, and sets its own age at 18. If it is a bet, the same product is a licensed, taxed, 21-and-over activity in about forty states and a crime in Texas. The product does not change. The 2024 case that opened the door was about elections: a federal judge held that a contract on who wins an election does not "involve" gaming or unlawful activity, the D.C. Circuit let trading start in October 2024, and the Commission dropped its appeal in May 2025 (Saunders 2026, pp. 660-661). Sports contracts followed within months.
Since Kalshi began listing sports contracts, what share of its total trading volume has been sports (July 2024 to April 2026)?
The market that Congress described as price discovery about "financial, economic, or commercial" contingencies is, on its largest platform, four-fifths sports. By spring 2026 the prediction markets' monthly volume was larger than the licensed sportsbooks' handle. That is the economic fact behind the legal fight: the states are not defending a definition, they are defending a licensed, taxed industry and the revenue from it, and the exchanges are defending a product that exists because the other definition applies.
Sources: 7 U.S.C. 1a(47), 2(a)(1)(A), 7a-2(c)(5)(C); 17 C.F.R. 40.11; Texas Penal Code 47.01-47.03; N.Y. Penal Law 225.00; Saunders, J. (2026). Bad bets: Examining the legality of sports-related prediction markets. North Carolina Journal of Law and Technology, 27(4), 649-682, at the pages cited; Pew Research Center, "Trading volume on prediction markets has soared in recent months," May 27, 2026, using data from The Block.
Twelve products
For each product, decide which definitions it falls under: a swap on a federally designated exchange, a bet or gambling under the Texas and New York statutes on the first tab, both, or neither. The reference then adds two things: how the Commission's June 2026 proposed rule would treat it, and where a person in Texas could legally buy it today. Several of these have the same answer; the point is to notice where the definitions diverge and where they do not.
0 of 12 sorted.
What the sort shows. Nearly everything is both. The federal definition asks whether a payment depends on an event with an economic consequence, which every contract satisfies; the state definitions ask whether value is risked on a contest or a contingent event, which every contract also satisfies. The one product that is a bet and not a swap is the sportsbook wager, because it is not traded on a designated contract market: the identical prediction in a different building. The definitions do not distinguish the products. They distinguish the sellers, and the question of which seller gets to exist is decided on the next tab.
Two years of decisions
The events below are the record through early September 2026. Before you read it, guess one count.
By the end of June 2026, how many states had the Commodity Futures Trading Commission sued in federal court to stop them from enforcing their gambling laws against prediction markets?
Nine, and the count matters less than the direction. A federal regulator whose statute lets it prohibit contracts that involve gaming chose instead to sue the states that tried to, to invoke an emergency power last used in 1980 to keep an exchange trading in a state that had sued it, and to propose a rule under which most sports contracts are permitted. Forty-four state attorneys general told the Commission in July that it has no such authority; the Third Circuit said, two to one, that it does; the Southern District of New York and a district court in Ohio said it does not. In Texas, which licenses no sports betting, the attorney general joined none of the multistate filings, the lieutenant governor asked a Senate committee in March 2026 to study the "loophole" for the 2027 session, and Kalshi operates. The split is headed for the Supreme Court; nothing had been filed there as of this writing.
Sources: KalshiEX LLC v. Flaherty, No. 25-1922 (3d Cir. Apr. 6, 2026), as summarized by Paul, Weiss and by Skadden; Massachusetts Attorney General, press release of January 20, 2026; Office of the New York Attorney General, press release of July 31, 2026, and reporting by CNBC and Covers; CFTC proposed rule of June 10, 2026, as summarized by Greenberg Traurig and SBC Americas; CFTC emergency order of August 11, 2026, as reported by PYMNTS; RotoWire prediction markets legal timeline (retrieved September 2026) for the district court and state actions; Texas Tribune, May 1, 2026, on Texas officials. Dates for district court rulings and state suits are as reported; check the docket before citing any of them in the case project.
Kramer, Michalowski, and Kauzlarich
State-corporate crime, in the definition the three authors trace to 1990, is illegal or socially injurious action that results from a mutually reinforcing interaction between the policies and practices of institutions of political governance and those of institutions of economic production. Two forms: state-initiated, where the government directs or participates in the harm, and state-facilitated, where the government fails to restrain harm it has the power and the duty to restrain. Their integrated model asks, at three levels (the institutional environment, the organization, the individual), about three catalysts: the motivation for the conduct, the opportunity structure that makes it possible, and the operationality of controls that could stop it. Michalowski and Brown applied the same model to environmental rollbacks in Lab 9. Sort the six statements below by which form of state-corporate crime they describe, if any.
0 of 6 sorted.
The model applied. Motivation, at the institutional level, is the revenue and the lobbying on both sides: states defending a taxed industry, exchanges and their investors defending an untaxed one; at the organizational level, a regulator whose chairman has said the agency's job is not to stand in the way of innovation. Opportunity is the definition: two statutes, one word, and a court split that lets the product exist while the question is open. Control is what the special rule was for, and the Commission's decision not to use it is the state-facilitated half; the emergency order and the suits against states are closer to state-initiated. Whether any of it is crime depends, as it did in Lab 9, on which definition of crime you chose in Lab 1: nothing here is illegal under the federal statute as the Third Circuit read it, and all of it is illegal under the state statutes as New York and Massachusetts read them.
Sources: Kramer, R. C., Michalowski, R. J., and Kauzlarich, D. (2002). The origins and development of the concept and theory of state-corporate crime. Crime and Delinquency, 48(2), 263-282 (library); the definition and the two forms are as stated in the article and in Kramer and Michalowski (1990); add page numbers from the assigned copy. If the Jackpot Justice preprint (Pitman, Membrez-Weiler, Kibler, and Michel) is assigned in its place, use its framework for this tab. Schüll, N. D. (2012). Addiction by Design: Machine Gambling in Las Vegas, Introduction (library).
Schüll: the product is the design
Schüll's introduction describes the "machine zone," the state machine gamblers seek in which time, money, and the outside world fall away, and shows that the zone is engineered: the speed of play, the continuity of one game into the next, the removal of every interruption, and the industry's own measure of success, time on device. The question for a prediction market app is which of its features are the same engineering. For each feature, say which policy problem it raises first: addiction and consumer protection, the integrity of the game, or age and access.
0 of 5 matched.
Read the Commission's proposal against Schüll. The June 2026 proposal would bar contracts on injuries, officiating calls, and single in-game actions, because one person could decide them; it says nothing about the speed of the app, the continuity of markets during a game, combination contracts, or the age of the customer. Integrity of the contest is a market-design problem the Commission recognizes. Time on device is the problem Schüll describes, and it is the one the federal framework has no category for, because the framework was written for hedgers and speculators, not players. The states' frameworks have that category, and no jurisdiction.
Lab 11 response sheet
Answer the four questions below in complete sentences. Then use the button at the bottom to assemble your answers and your sorting record into one block of text, and paste that text into the Lab 11 submission in D2L before you leave class. Your answers stay on this page and are not sent anywhere until you paste them.
About the products and the record
The twelve products are described from the exchanges' own listings and from the complaints and press statements cited on the third tab; contract names are paraphrased and prices are illustrative. The legal record on the third tab is current to early September 2026 and will not be by the time you read it: check the Third Circuit, Southern District of New York, and Supreme Court dockets, and the Commission's rulemaking page, before the lab. Statutes are quoted from the current Texas Penal Code and New York Penal Law and from Title 7 of the U.S. Code.