In a significant ruling, a federal appeals court has barred New Jersey from temporarily banning Kalshi, a prediction market platform, giving the company a crucial victory against a wave of state-led enforcement actions. The Third Circuit Court of Appeals decided that New Jersey cannot pursue enforcement action against Kalshi because the company's offerings fall under the federal Commodity Exchange Act, rather than the state's gambling laws. The court's majority opinion stated that Kalshi's sports-related event contracts are subject to federal law, having been self-certified as compliant with applicable laws and regulations. As the Commodity Futures Trading Commission (CFTC) has not determined that Kalshi's sports-related event contracts are contrary to the public interest, the court ruled in favor of the company.
The CFTC has not initiated any enforcement actions against sports-related event contracts, according to the ruling. New Jersey had argued that Kalshi's event contracts do not qualify as 'swaps' under the Commodity Exchange Act, but the court found this argument to be unconvincing.
In a dissenting opinion, Circuit Judge Jane Roth expressed the view that New Jersey's state rules do not undermine the objectives of the Commodity Exchange Act and that the products offered on Kalshi's platform constitute sports gambling. The ruling comes as states across the US have begun filing lawsuits or issuing cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging that their sports-related contracts violate state gambling laws. The CFTC has maintained that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which supersedes these state rules.
Different courts have issued conflicting rulings, with some state courts granting temporary restraining orders or preliminary injunctions in favor of the states, while federal district courts have been more divided. Appeals courts have also been inconsistent, with the Third Circuit's ruling suggesting that prediction market providers may prevail in their argument that the Commodity Exchange Act preempts state rules, while the Ninth Circuit declined to block a state enforcement action in Nevada last month.
CFTC Chairman Michael Selig emphasized the importance of the federal regulator defending its 'exclusive jurisdiction over these markets' and noted that the CFTC's definition of a commodity is broad, encompassing events in sports, politics, and other areas.