In a recent ruling, a federal judge has temporarily halted Arizona's plans to file criminal charges against prediction market provider Kalshi, in response to a motion submitted by the Commodity Futures Trading Commission. The ruling, issued by District Judge Michael Liburdi of the District of Arizona, prevents the state from proceeding with an arraignment of Kalshi that was scheduled for April 13. This decision comes after Arizona announced its intention to file 20 criminal charges against Kalshi for allegedly offering betting products that violate state law. The court's ruling states that the Commodity Futures Trading Commission has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act.
As a result, the judge has granted a temporary restraining order, effective for two weeks, and noted that a pending motion for a preliminary injunction could potentially extend this order. The judge's decision also warns that Arizona's pursuit of state action may infringe upon the Supremacy Clause.
The Commodity Futures Trading Commission has welcomed the judge's ruling, with Chair Michael Selig stating that the regulator appreciates the decision and views Arizona's actions as an attempt to intimidate companies that comply with federal law. The Commodity Futures Trading Commission has argued that prediction markets, also known as event contracts, fall under its supervision as swaps, and that its role takes precedence over state law. This viewpoint has yielded mixed results in court, with state courts often siding with states and federal courts producing different outcomes.
The Third Circuit Court of Appeals recently ruled that prediction markets are subject to the Commodity Futures Trading Commission's 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 in favor of the Commodity Futures Trading Commission's motion to block Arizona's state action against Kalshi comes two days after he denied Kalshi's own motion for a preliminary injunction against the state, which was argued on different grounds.