In a recent ruling, a federal judge has temporarily halted Arizona's pursuit of criminal charges against prediction market provider Kalshi. 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 scheduled, after the state announced plans to file 20 criminal charges against the company for allegedly offering betting products in violation of state law. The judge's ruling stated that the CFTC has demonstrated a likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act.
Arizona's actions may violate the Supremacy Clause, leading the judge to grant a temporary restraining order for two weeks. The order restrains Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets. The CFTC Chair, Michael Selig, applauded 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 are swaps subject to federal supervision, which preempts state law.
This view 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 will hold a hearing on a consolidated case next week, allowing various providers and parties to argue their positions.