In response to a motion filed by the Commodity Futures Trading Commission, a federal judge has temporarily barred the state of Arizona from bringing criminal charges against prediction market provider Kalshi. The ruling, issued by District Judge Michael Liburdi of the District of Arizona, prevents Arizona from proceeding with an arraignment of Kalshi that was scheduled for April 13.
This decision comes after Arizona announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate state law. The judge's ruling states that the CFTC has demonstrated a likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act.
As a result, Arizona's pursuit of a state action could violate the Supremacy Clause, leading the judge to grant a temporary restraining order for a period of two weeks. The order also notes that a pending motion for a preliminary injunction could potentially extend this temporary restraining order. According to the ruling, Arizona is temporarily restrained from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets.
CFTC Chair Michael Selig expressed appreciation for the judge's decision, stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent. The CFTC has argued that prediction markets are swaps subject to federal supervision, which preempts state law. This viewpoint has seen mixed results in court, with state courts often siding with states and federal courts yielding different outcomes. The Ninth Circuit Court of Appeals will hold a hearing on a consolidated case next week, allowing various providers and parties to present their arguments.