In response to a motion filed by the Commodity Futures Trading Commission, a federal judge has temporarily barred the state of Arizona from pressing criminal charges against Kalshi, a provider of prediction markets. This decision was made by District Judge Michael Liburdi of the District of Arizona, who ruled that Arizona cannot proceed with the scheduled arraignment of Kalshi, which was set for Monday, April 13. Last month, Arizona announced its intention to file 20 criminal charges against Kalshi, alleging that the company had violated state law by offering betting products. The judge's ruling stated that the CFTC has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act.
As a result, Arizona's pursuit of a state action may be in violation of the Supremacy Clause, leading the judge to grant a temporary restraining order for a period of two weeks. Additionally, a pending motion for a preliminary injunction may extend the temporary restraining order if granted. The judge's order explicitly states that Arizona is temporarily restrained from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets. In a statement, CFTC Chair Michael Selig expressed appreciation for the judge's decision, emphasizing that Arizona's use of 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, fall under its supervision as swaps, and that its authority 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 regulation, 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 came two days after denying Kalshi's own motion for a preliminary injunction against the state, which was based on different grounds.