In a significant decision, a federal appeals court has ruled that New Jersey is barred from temporarily banning Kalshi, a platform offering sports-related event contracts, due to federal commodity exchange laws taking precedence over state gambling laws. The Third Circuit Court of Appeals made this ruling in a 2-1 decision, stating that Kalshi's products fall under the federal Commodity Exchange Act, and thus, the state cannot initiate enforcement actions. The court's majority opinion emphasized that Kalshi had self-certified compliance with applicable laws and regulations, and the Commodity Futures Trading Commission (CFTC) had not deemed the company's sports-related event contracts contrary to public interest. Meanwhile, a dissenting judge argued that New Jersey's state rules did not undermine congressional objectives under the Commodity Exchange Act and that the products offered on Kalshi's platform constituted sports gambling.
This ruling comes as states across the US have been filing lawsuits or issuing cease-and-desist orders against prediction market providers like Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC has maintained that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which preempts state rules. The decision may have implications for the ongoing debate over the regulation of prediction markets, with different courts issuing conflicting rulings.
CFTC Chairman Michael Selig has emphasized the importance of defending the regulator's exclusive jurisdiction over these markets, highlighting the broad definition of commodities under federal statute, which encompasses events on sports, politics, and other areas.