In a recent ruling, a federal judge in Arizona has temporarily blocked the state from filing criminal charges against Kalshi, a prediction market provider. The decision comes in response to a motion filed by the Commodity Futures Trading Commission.
District Judge Michael Liburdi ruled that Arizona cannot proceed with an arraignment of Kalshi as scheduled, after the state announced plans to file 20 criminal charges against the company for allegedly violating Arizona law by offering betting products. The judge found that the CFTC has a strong case in arguing that Arizona's gambling laws are preempted by federal law, and that pursuing state action could violate the Supremacy Clause.
As a result, the judge granted a temporary restraining order for two weeks, which may be extended if a pending motion for a preliminary injunction is approved. The ruling states that 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 welcomed the decision, stating that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent. The CFTC has argued that prediction markets are subject to its supervision as swaps, and that its role preempts state law.
The issue has seen mixed results in court, with state courts often siding with states and federal courts producing different outcomes. The Ninth Circuit Court of Appeals will hold a hearing on a consolidated case next week, allowing various parties to argue their positions.