In a recent ruling, a federal judge in Arizona has blocked the state from pursuing 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. District Judge Michael Liburdi ruled that Arizona cannot proceed with an arraignment of Kalshi, which was scheduled for Monday, April 13.
The state had announced plans to file 20 criminal charges against Kalshi, alleging that the company's offerings violated Arizona law. However, the judge found that the CFTC has a strong case in arguing that Arizona's gambling laws are preempted by the Commodity Exchange Act.
The judge granted a temporary restraining order, effective for two weeks, citing concerns that Arizona's actions might violate the Supremacy Clause. The ruling also noted that a pending motion for a preliminary injunction could potentially extend the temporary restraining order. The CFTC Chair, Michael Selig, welcomed the judge's decision, stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent.
The CFTC has argued that prediction markets, also known as event contracts, are swaps subject to federal supervision, and that this role preempts state law. The case 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 is set to hold a hearing on a consolidated case next week, allowing various providers and parties to present their arguments.