A federal appeals court has handed Kalshi a significant victory, ruling that New Jersey cannot temporarily ban the prediction market provider. The Third Circuit Court of Appeals decided that the state's enforcement action against Kalshi is preempted by federal law, as the company's products fall under the Commodity Exchange Act.
The ruling, made by a 2-1 majority, determined that Kalshi's sports-related event contracts are subject to federal regulation, rather than New Jersey state gambling laws. The Commodity Futures Trading Commission (CFTC) has not taken any enforcement action against Kalshi's sports-related event contracts, and the court found that the state's rules do not undermine the congressional objectives of the Commodity Exchange Act. However, not all courts have agreed, with the Ninth Circuit recently declining to block a similar enforcement action in Nevada. The CFTC has argued that prediction markets are swaps governed by the Commodity Exchange Act, which preempts state rules.
The regulator's chairman, Michael Selig, emphasized the importance of defending the CFTC's exclusive jurisdiction over these markets, stating that the definition of a commodity is broad and includes events on sports, politics, and other areas.