In a recent ruling, a federal judge in Arizona has halted the state's attempt to bring criminal charges against Kalshi, a prediction market provider, at least for the time being. This decision comes in response to a motion filed by the Commodity Futures Trading Commission.
Judge Michael Liburdi of the District of Arizona ruled on Friday that Arizona cannot proceed with an arraignment of Kalshi scheduled for Monday, April 13. The state had announced plans to file 20 criminal charges against Kalshi last month, claiming the company's offerings violated Arizona law. The judge's ruling stated 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.
Proceeding with the state action could potentially violate the Supremacy Clause, leading the judge to grant a temporary restraining order for two weeks. A pending motion for a preliminary injunction could extend this order. The judge's decision restrains Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on Commodity Futures Trading Commission-regulated markets.
The Commodity Futures Trading Commission 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 Commodity Futures Trading Commission has argued that prediction markets are subject to its supervision as swaps, and its role preempts state law.
This viewpoint has seen mixed results in court, with state courts often siding with states and federal courts reaching different conclusions. The Third Circuit Court of Appeals recently ruled that prediction markets are subject to Commodity Futures Trading Commission rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi. Judge Liburdi granted the Commodity Futures Trading Commission's motion to block Arizona's action against Kalshi just two days after denying Kalshi's own motion for a preliminary injunction against the state.