In a significant ruling, a US appeals court has barred New Jersey from temporarily banning prediction market provider Kalshi, handing the company a crucial victory against a wave of state-led enforcement actions. The Third Circuit Court of Appeals decided, with a 2-1 majority vote, that New Jersey cannot pursue enforcement action against Kalshi, as the company's offerings fall under the federal Commodity Exchange Act rather than the state's gambling laws.
The ruling stated that Kalshi had self-certified compliance with relevant laws and regulations, and since the Commodity Futures Trading Commission (CFTC) has not deemed Kalshi's sports-related event contracts to be against the public interest, they are presumptively approved under federal law. The CFTC has not initiated any enforcement actions against such contracts, according to the ruling. The judges noted that New Jersey's argument that Kalshi's event contracts do not qualify as 'swaps' covered by the Act is unfounded, as it imposes a stricter requirement than what the Commodity Exchange Act demands. In a dissenting opinion, Circuit Judge Jane Roth argued that New Jersey's state rules do not undermine the objectives of the Commodity Exchange Act and that the products offered on Kalshi's platform constitute sports gambling.
The ruling comes as states across the US have been filing lawsuits or issuing cease-and-desist orders against prediction market providers like Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC has countered that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which takes precedence over state rules.
The decision marks a significant development in the ongoing debate, with different courts issuing conflicting rulings. While some state courts have granted temporary restraining orders or preliminary injunctions in favor of the states, federal district courts have been more divided in their decisions. 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's recent decision to allow Nevada to proceed with a temporary restraining order and preliminary injunction against Kalshi indicates that the issue is far from resolved.
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 encompasses various events, including sports and politics.