In response to a motion filed by the Commodity Futures Trading Commission, a federal judge has temporarily blocked the state of Arizona from pressing criminal charges against Kalshi, a prediction market provider. This decision comes after Arizona announced plans to file 20 criminal charges against Kalshi for allegedly violating state law by offering betting products.
District Judge Michael Liburdi of the District of Arizona ruled that Arizona cannot proceed with an arraignment scheduled for Monday, April 13. The judge's ruling stated that the Commodity Futures Trading Commission has demonstrated a likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. As a result, proceeding with state action could potentially violate the Supremacy Clause, prompting the judge to grant a temporary restraining order for two weeks. The order also notes a pending motion for a preliminary injunction, which, if granted, would extend the temporary restraining order.
The judge's decision temporarily restrains Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on Commodity Futures Trading Commission-regulated designated contract markets. In a statement, Commodity Futures Trading Commission Chair Michael Selig expressed appreciation for the judge's decision, emphasizing that using state criminal law against companies complying with federal law sets a dangerous precedent. The Commodity Futures Trading Commission has argued that prediction markets, also known as event contracts, are subject to its supervision as swaps, and its role preempts state law.
The outcomes of similar cases in state and federal courts have been mixed, with some state courts siding with states and federal courts yielding different results. 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 granted the Commodity Futures Trading Commission's motion two days after denying Kalshi's own motion for a preliminary injunction against the state, which was argued on different grounds.