In a significant development, a federal judge has temporarily barred the state of Arizona from pressing criminal charges against Kalshi, a prediction market provider. This ruling comes in response to a motion filed by the Commodity Futures Trading Commission (CFTC). District Judge Michael Liburdi of the District of Arizona made this decision, stating that Arizona cannot proceed with the scheduled arraignment of Kalshi. The state had announced plans to file 20 criminal charges against Kalshi for allegedly violating Arizona law by offering betting products.
The judge's ruling found that the CFTC has a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by federal law, specifically the Commodity Exchange Act. As a result, Arizona's actions may violate the Supremacy Clause, leading the judge to grant a temporary restraining order for two weeks. This order prevents Arizona from enforcing its gambling laws in relation to contracts listed on CFTC-regulated markets. The CFTC 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 CFTC has argued that prediction markets, or event contracts, fall under its supervision as swaps, and thus are subject to federal law, which preempts state law. This viewpoint has yielded mixed results in court, with state courts often siding with the states and federal courts producing different outcomes. The Third Circuit Court of Appeals recently ruled that prediction markets are subject to CFTC rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi. Judge Liburdi's ruling comes after he denied Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.