In a significant decision, a federal appeals court has ruled that New Jersey cannot temporarily ban the operations of prediction market provider Kalshi, handing the company a crucial victory in its battle against state-level enforcement actions. The Third Circuit Court of Appeals, in a 2-1 decision, found that Kalshi's products fall under the federal Commodity Exchange Act, thereby superseding New Jersey's state gambling laws.
The ruling emphasized that Kalshi had self-certified compliance with applicable laws and regulations, and as such, its event contracts were presumed to be approved under federal law. Furthermore, the Commodity Futures Trading Commission (CFTC) has not initiated any enforcement actions against sports-related event contracts, which supports Kalshi's position. The appeals court rejected New Jersey's argument that Kalshi's event contracts do not qualify as 'swaps' under the Commodity Exchange Act, stating that the state's proposed requirements were overly stringent.
However, not all judges were in agreement, with Circuit Judge Jane Roth dissenting and arguing that New Jersey's state rules did not undermine the congressional objectives of the Commodity Exchange Act. This ruling is part of a larger landscape in which states are taking action against prediction market providers, including Kalshi and Polymarket, alleging violations of state gambling laws.
The CFTC has maintained that prediction markets are governed by the Commodity Exchange Act, which preempts state rules. The decision by the Third Circuit Court of Appeals suggests that prediction market providers may prevail in their argument that the Commodity Exchange Act takes precedence over state laws, although the Ninth Circuit has previously declined to block another state enforcement action. The CFTC Chairman, Michael Selig, has emphasized the importance of defending the regulator's exclusive jurisdiction over these markets, highlighting the broad definition of commodities and the uniform regulatory approach.