In a significant development, a federal judge has intervened to stop Arizona from pressing criminal charges against Kalshi, a prediction market provider, at least for the moment. This move comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi of the Arizona district ruled on Friday that Arizona is barred from proceeding with an arraignment of Kalshi that was scheduled for April 13.
Last month, Arizona announced its intention to file 20 criminal charges against Kalshi, alleging that the company's offerings violated state law by constituting betting products. The court's ruling indicates that the CFTC has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by federal legislation, specifically the Commodity Exchange Act. By allowing Arizona to proceed with its state action, the judge noted, the state might be in violation of the Supremacy Clause, leading to the issuance of a temporary restraining order that will remain in effect for two weeks. There is also a pending motion for a preliminary injunction that, if granted, would extend the temporary order.
The judge's decision has been welcomed by CFTC Chair Michael Selig, who expressed appreciation for the ruling and warned that using state criminal law to target companies complying with federal law sets a dangerous precedent. The CFTC has been arguing in court that prediction markets, or event contracts, fall under its supervision as swaps, a view that has seen mixed outcomes in different courts.
While some state courts have sided with the states, federal courts have delivered varying verdicts, with the Third Circuit Court of Appeals recently ruling that prediction markets are indeed subject to CFTC oversight. The Ninth Circuit Court of Appeals has decided not to intervene in a similar case in Nevada but is set to hold a hearing on a consolidated case involving various providers and parties. Judge Liburdi's decision to block Arizona's action against Kalshi comes two days after he denied a motion by Kalshi for a preliminary injunction against the state, although the grounds for argument differed.