In a recent ruling, a federal judge has temporarily blocked Arizona's attempts to bring criminal charges against Kalshi, a prediction market provider, in response to a motion filed by the Commodity Futures Trading Commission. The decision, made by District Judge Michael Liburdi of the District of Arizona, prevents Arizona from proceeding with an arraignment of Kalshi that was scheduled for Monday, April 13.
This 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 Commodity Futures Trading Commission has demonstrated a strong 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 state action could potentially violate the Supremacy Clause. The temporary restraining order, which will remain in effect for two weeks, also notes a pending motion for a preliminary injunction that could extend the order. The judge's decision has been welcomed by CFTC Chair Michael Selig, who expressed concerns that Arizona's actions could set a dangerous precedent by using state criminal law against companies that comply with federal law. The Commodity Futures Trading Commission has argued that prediction markets, also known as event contracts, fall under its supervision as swaps, and that its role takes precedence over state law.
This viewpoint has yielded mixed results in court, with state courts often siding with states and federal courts producing different outcomes. The Third Circuit Court of Appeals recently ruled that prediction markets are subject to the Commodity Futures Trading Commission's rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi. Judge Liburdi's ruling comes two days after he denied Kalshi's motion for a preliminary injunction against Arizona, with the parties arguing on different grounds.