In a significant ruling, a federal appeals court has barred New Jersey from temporarily blocking the operations of prediction market provider Kalshi, handing the company a crucial victory in its battle against state-led enforcement actions. The Third Circuit Court of Appeals, in a 2-1 decision, determined that Kalshi's products fall under the federal Commodity Exchange Act, making them exempt from New Jersey's state gaming laws. According to the ruling, Kalshi had self-certified its compliance with applicable laws and regulations, and the Commodity Futures Trading Commission (CFTC) had not found its sports-related event contracts to be contrary to public interest.
The court rejected New Jersey's argument that Kalshi's event contracts did not qualify as 'swaps' under the Act, stating that the proposed requirement would set the bar too high. The dissenting judge, however, argued that the state 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 filing lawsuits or issuing cease-and-desist orders against prediction market providers like Kalshi and Polymarket, alleging violations of state gaming laws. The CFTC has maintained that prediction markets are governed by the Commodity Exchange Act, which takes precedence over state rules.
The decision highlights the ongoing debate and mixed court rulings on the issue, with the Ninth Circuit recently declining to block a state enforcement action against Kalshi. The CFTC Chairman has emphasized the importance of defending the regulator's exclusive jurisdiction over these markets, and the agency has filed an amicus curiae brief in support of its position.