In a recent ruling, a federal judge has temporarily blocked Arizona's attempt to bring criminal charges against Kalshi, a prediction market provider. This decision comes in response to a motion filed by the Commodity Futures Trading Commission.
Judge Michael Liburdi of the District of Arizona ruled that Arizona cannot proceed with an arraignment of Kalshi as planned, following the state's announcement last month to file 20 criminal charges against the company for allegedly violating Arizona law by offering betting products. The judge's ruling stated that the CFTC is likely to succeed in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act, and that pursuing a state action could violate the Supremacy Clause.
As a result, a temporary restraining order has been granted for two weeks, with a pending motion for a preliminary injunction that could potentially extend this order. The CFTC chairman expressed appreciation for the judge's decision, emphasizing that using 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, fall under its supervision as swaps, and that its role preempts state law. This viewpoint has seen mixed results in court, with state courts often siding with states and federal courts yielding different outcomes. The Ninth Circuit Court of Appeals will hold a hearing on a consolidated case next week, allowing various providers and parties to present their arguments.