A federal appeals court has handed Kalshi a significant victory, ruling that New Jersey cannot temporarily ban the prediction market provider. The Third Circuit Court of Appeals decided in a 2-1 vote that Kalshi's products fall under the federal Commodity Exchange Act, rather than being subject to New Jersey state gambling laws. According to the majority ruling, Kalshi had self-certified compliance with applicable laws and regulations, resulting in presumptive approval under federal law.
The Commodity Futures Trading Commission (CFTC) has not determined that Kalshi's sports-related event contracts are contrary to the public interest, and no enforcement actions have been commenced against such contracts. The ruling highlighted that New Jersey's proposed 'joined or connected' requirement for swaps covered by the Act raises the bar beyond what is required.
In a dissenting opinion, Circuit Judge Jane Roth argued that New Jersey state rules do not undermine congressional objectives under the Commodity Exchange Act, and that the products available on Kalshi's platform constitute sports gambling. The decision comes as states across the US have begun filing lawsuits or issuing cease-and-desist orders to prediction market providers, including Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC has contended that prediction markets are swaps governed by the Commodity Exchange Act, which preempts state rules. The ruling marks a significant development in the ongoing debate, with different courts issuing divergent rulings on the matter.
While the Third Circuit's decision suggests that prediction market providers may prevail in their argument that the Commodity Exchange Act preempts state rules, the Ninth Circuit has declined to block another state enforcement action, clearing the way for a temporary restraining order and preliminary injunction against Kalshi. CFTC Chairman Michael Selig emphasized the importance of defending the regulator's exclusive jurisdiction over these markets, stating that the definition of commodity and statute is very broad and includes events on sports, politics, and other areas.