In a recent ruling, a federal judge in Arizona has temporarily halted the state's attempt to bring criminal charges against Kalshi, a prediction market provider. The decision comes after the Commodity Futures Trading Commission intervened, arguing that Arizona's actions could be preempted by federal law. District Judge Michael Liburdi ruled that Arizona cannot proceed with an arraignment of Kalshi, which was scheduled for Monday, April 13.
This move is in response to Arizona's announcement last month that it would file 20 criminal charges against Kalshi for allegedly violating state law by offering betting products. The judge's ruling stated that the Commodity Futures Trading Commission has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are superseded by the Commodity Exchange Act. As a result, Arizona proceeding with state action could potentially violate the Supremacy Clause. The temporary restraining order, which is in effect for two weeks, may be extended if a pending motion for a preliminary injunction is granted.
The judge's order explicitly 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. In reaction to the ruling, CFTC Chair Michael Selig expressed appreciation for the judge's decision, emphasizing that using state criminal law against companies complying with federal law sets a dangerous precedent.
The case is part of a broader dispute between the Commodity Futures Trading Commission and several states, including Arizona, over the regulation of prediction markets, also known as event contracts. While state courts have often sided with states in such matters, federal courts have yielded mixed results.
Recently, the Third Circuit Court of Appeals ruled that prediction markets fall under the Commodity Futures Trading Commission's supervision, while a Nevada state court allowed the temporary blocking of Kalshi pending further litigation. The Ninth Circuit Court of Appeals has declined to intervene in the Nevada case but is scheduled 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 Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.