In a recent ruling, a federal judge has halted Arizona's attempt to bring criminal charges against Kalshi, a prediction market provider, at least for the time being. This 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 previously scheduled. The state had announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate Arizona law.
However, the judge found that the CFTC has a strong case in arguing that Arizona's gambling laws are preempted by the Commodity Exchange Act. Allowing Arizona to proceed with its state action could potentially violate the Supremacy Clause, leading the judge to grant a temporary restraining order for two weeks. The ruling also notes that there is a pending motion for a preliminary injunction, which, if granted, would extend the temporary restraining order.
The judge's decision restrains Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets. CFTC Chair Michael Selig welcomed the judge's decision, stating that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent.
The CFTC has argued that prediction markets, also known as event contracts, are swaps subject to federal supervision and that its role preempts state law. This viewpoint has yielded mixed results in court, with state courts often siding with states and federal courts producing different outcomes. The Third Circuit Court of Appeals recently ruled that prediction markets are subject to CFTC rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi. Judge Liburdi's decision to block Arizona's state action against Kalshi comes two days after denying Kalshi's own motion for a preliminary injunction against the state, with the parties arguing on different grounds.