In a recent ruling, a federal judge in Arizona has temporarily barred the state from bringing criminal charges against prediction market provider Kalshi, in response to a motion filed by the Commodity Futures Trading Commission. This decision comes after Arizona announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate state law. District Judge Michael Liburdi ruled that Arizona cannot proceed with an arraignment scheduled for Monday, April 13.
The judge's ruling stated that the Commodity Futures Trading Commission has shown it is likely to succeed in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. As a result, proceeding with state action could violate the Supremacy Clause.
The temporary restraining order, which will be in effect for two weeks, may be extended if a pending motion for a preliminary injunction is granted. The order specifically restrains Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on Commodity Futures Trading Commission-regulated markets. The Commodity Futures Trading Commission Chairman, Michael Selig, expressed appreciation for the judge's decision, stating that Arizona's actions set a dangerous precedent and that the court's order sends a clear message against using intimidation to circumvent federal law.
The Commodity Futures Trading Commission has argued that prediction markets, also known as event contracts, are subject to federal supervision and that its role preempts state law. This view has seen 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 Commodity Futures Trading Commission rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court case but will hold a hearing on a consolidated case next week.