In a significant ruling, a federal appeals court has barred New Jersey from temporarily banning Kalshi, a prediction market provider, giving the company a crucial victory in its battle against state enforcement actions. The Third Circuit Court of Appeals decided that New Jersey cannot pursue enforcement action against Kalshi, as its products fall under the federal Commodity Exchange Act rather than the state's gambling laws.
The court's majority opinion noted that Kalshi had self-certified its compliance with applicable laws and regulations, and the Commodity Futures Trading Commission (CFTC) had not determined that Kalshi's sports-related event contracts were contrary to the public interest. The CFTC has not initiated any enforcement actions against such contracts, according to the ruling.
New Jersey had argued that Kalshi's event contracts did not qualify as 'swaps' under the Commodity Exchange Act, but the court rejected this argument, stating that the state's proposed requirement would set the bar too high. In a dissenting opinion, Circuit Judge Jane Roth argued that New Jersey's 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 begun filing lawsuits or issuing cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging that their sports-related contracts violate state gambling laws.
The CFTC has maintained that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which preempts these state rules. The decision is the latest in a series of mixed rulings from different courts, with some state courts issuing temporary restraining orders or preliminary injunctions in favor of the states, while federal district courts have been more divided. The Third Circuit's ruling suggests that prediction market providers may prevail in their argument that the Commodity Exchange Act preempts state rules, but the Ninth Circuit has declined to block another state enforcement action, allowing Nevada to secure a temporary restraining order and preliminary injunction against Kalshi. CFTC Chairman Michael Selig emphasized the importance of defending the federal regulator's exclusive jurisdiction over these markets, stating that the definition of commodity and statute is broad and includes events on sports, politics, and other areas.