In a significant ruling, a federal appeals court has granted Kalshi a major victory, blocking New Jersey's attempt to temporarily ban the prediction market provider. The Third Circuit Court of Appeals decided that the state cannot take enforcement action against Kalshi, as the company's products fall under the federal Commodity Exchange Act, rather than New Jersey's state gambling laws. The court's majority ruling stated that Kalshi had self-certified compliance with applicable laws and regulations, and the event contracts were therefore presumptively approved under federal law. The Commodity Futures Trading Commission (CFTC) has not determined that Kalshi's sports-related event contracts are contrary to the public interest.
The ruling also addressed New Jersey's argument that Kalshi's event contracts are not 'swaps' covered by the Act, stating that the proposed 'joined or connected' requirement raises the bar beyond what the Act requires. Meanwhile, a dissenting judge argued that the New Jersey state rules did not undermine the congressional objectives under the Commodity Exchange Act, and the actual products available on Kalshi's platform constitute sports gambling. The ruling comes as states across the US have been filing lawsuits or issuing cease-and-desist orders to prediction market providers, including Kalshi and Polymarket, alleging that their sports-related contracts violate state gambling laws.
The CFTC has contended that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which preempts these state rules. The decision is the latest in a series of mixed rulings from different courts, with some state courts issuing temporary restraining orders or preliminary injunctions in favor of the states, while federal district courts have been more divided.
Appeals courts have also been mixed, with the Ninth Circuit declining to block another state enforcement action from Nevada last month. CFTC Chairman Michael Selig emphasized the importance of defending the federal regulator's exclusive jurisdiction over these markets, stating that the definition of commodity and statute is very broad and includes events on sports, politics, and other areas.