In a significant ruling, a federal appeals court has granted Kalshi, a prediction market platform, a major victory against New Jersey's attempts to shut down its operations. The Third Circuit Court of Appeals decided that the state cannot bring an enforcement action against Kalshi, citing that the company's products fall under the federal Commodity Exchange Act, which supersedes state gambling laws. The court's majority opinion stated that Kalshi's sports-related event contracts are presumptively approved under federal law, as the company had self-certified compliance with applicable laws and regulations. The Commodity Futures Trading Commission (CFTC) has not determined that Kalshi's contracts are contrary to the public interest, and no enforcement actions have been commenced against such contracts.
The ruling noted that New Jersey's argument that Kalshi's event contracts are not covered by the Act is unfounded, as it raises the bar beyond what the Commodity Exchange Act requires. In a dissenting opinion, Circuit Judge Jane Roth argued that New Jersey's state rules do not undermine the congressional objectives under the Commodity Exchange Act and that the products available on Kalshi's platform constitute sports gambling. The decision comes as states across the US have been filing lawsuits or issuing cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging violations of state gambling laws.
The CFTC has maintained that prediction markets are swaps governed by the Commodity Exchange Act, which preempts state rules. The ruling has significant implications for the industry, as it suggests that prediction market providers may prevail in their argument that federal laws preempt state regulations.
However, the outcome of similar cases in other courts remains uncertain, with some state courts issuing temporary restraining orders or preliminary injunctions in favor of the states, while federal district courts have been more divided in their rulings.