A significant court ruling has handed Kalshi a crucial victory, allowing the prediction market provider to continue operating in New Jersey despite the state's attempts to shut it down. The Third Circuit Court of Appeals decided that the federal Commodity Exchange Act supersedes state laws, thereby blocking New Jersey's enforcement action against Kalshi. The ruling, made by a 2-1 vote, determined that Kalshi's products fall under federal jurisdiction rather than being subject to New Jersey's gambling laws.
According to the majority ruling, Kalshi had self-certified compliance with applicable laws and regulations, and the Commodity Futures Trading Commission (CFTC) has not found its sports-related event contracts to be against the public interest. The CFTC has also not initiated any enforcement actions against such contracts. New Jersey had argued that Kalshi's event contracts did not qualify as 'swaps' under the Commodity Exchange Act, but the court found this requirement to be overly stringent. In a dissenting opinion, Circuit Judge Jane Roth expressed the view that New Jersey's rules did not undermine the objectives of the Commodity Exchange Act and that the products offered on Kalshi's platform constituted sports gambling.
The ruling comes as states across the US have been taking action against prediction market providers, including Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC has maintained that prediction markets are governed by the Commodity Exchange Act, which preempts state rules. The decision has significant implications, as different courts have issued conflicting rulings on the matter. While the Third Circuit's ruling favors prediction market providers, the Ninth Circuit has declined to block a similar enforcement action in Nevada.
CFTC Chairman Michael Selig emphasized the importance of defending the regulator's exclusive jurisdiction over these markets, stating that the definition of a commodity is broad and encompasses various events, including sports and politics.