In a recent ruling, a federal judge has temporarily blocked the state of Arizona from pursuing criminal charges against Kalshi, a prediction market provider. The decision comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi of the District of Arizona ruled that Arizona cannot proceed with an arraignment of Kalshi as scheduled. The state had previously announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate Arizona law.
The judge's ruling found that the Commodity Futures Trading Commission has a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by federal law. As a result, Arizona's actions may violate the Supremacy Clause.
The temporary restraining order is in effect for two weeks, and a pending motion for a preliminary injunction may extend this period. The judge's decision has been welcomed by the CFTC, with Chair Michael Selig stating that the regulator appreciates the ruling. Selig cautioned that using state criminal law to target companies complying with federal law sets a dangerous precedent.
The CFTC has argued that prediction markets are subject to its supervision and that its role preempts state law. This view has yielded 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 providers and other parties to present their arguments.