In a significant victory for prediction market provider Kalshi, a federal appeals court has prohibited New Jersey from imposing a temporary ban on the platform. The Third Circuit Court of Appeals ruled 2-1 that New Jersey's enforcement action is preempted by federal law, specifically the Commodity Exchange Act, which governs Kalshi's products. The court found that Kalshi's sports-related event contracts are subject to federal law, and the Commodity Futures Trading Commission (CFTC) has not determined that these contracts are against the public interest. The ruling stated that Kalshi's event contracts are presumptively approved under federal law, and the CFTC has not commenced any enforcement actions against such contracts.
The decision comes as states across the US have been filing lawsuits and issuing cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging that their sports-related contracts violate state gambling laws. The CFTC has argued that prediction markets are swaps governed by the Commodity Exchange Act, which preempts state rules. The ruling has significant implications for the industry, with different courts issuing conflicting decisions.
While the Third Circuit's ruling suggests that prediction market providers may prevail in their argument that federal law preempts state rules, other courts have reached different conclusions. The issue is likely to continue to be contested in the courts, with the CFTC defending its exclusive jurisdiction over these markets.