In a recent ruling, a federal judge in Arizona has blocked the state from pressing 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 as scheduled, after the state announced plans to file 20 criminal charges against the company for allegedly violating Arizona law with its betting products.
The judge's ruling stated that the Commodity Futures Trading Commission has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by federal law, specifically the Commodity Exchange Act. This temporary restraining order, which will be in effect for two weeks, may be extended if a preliminary injunction is granted. The judge noted that allowing Arizona to proceed with state action could potentially violate the Supremacy Clause. The Commodity Futures Trading Commission has welcomed the judge's decision, with Chair Michael Selig stating that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent.
The regulator argues that prediction markets, or event contracts, fall under its supervision as swaps, thereby preempting state law. This viewpoint has yielded mixed results in court, with state courts often siding with states and federal courts producing varying outcomes. The Third Circuit Court of Appeals recently ruled that prediction markets are subject to Commodity Futures Trading Commission rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi.
Judge Liburdi's decision to grant the Commodity Futures Trading Commission's motion came two days after denying Kalshi's own motion for a preliminary injunction against the state, with the parties arguing on different grounds.