In a significant victory for Kalshi, a federal appeals court has ruled that New Jersey cannot temporarily ban the company's sports-related markets. The Third Circuit Court of Appeals decided that the federal Commodity Exchange Act takes precedence over state gambling laws, thereby blocking New Jersey's enforcement action against Kalshi. The ruling, which was made by a 2-1 majority, stated that Kalshi's products are subject to federal law and that the company had self-certified compliance with applicable laws and regulations.
The Commodity Futures Trading Commission (CFTC) has not determined that Kalshi's sports-related event contracts are contrary to the public interest, and no enforcement actions have been commenced against such contracts. The ruling rejected New Jersey's argument that Kalshi's event contracts are not covered by the Commodity Exchange Act, as the state's proposed requirements would set the bar too high. However, Circuit Judge Jane Roth dissented, arguing that New Jersey's state rules do not undermine the congressional objectives under the Commodity Exchange Act and that the products available on Kalshi's platform constitute sports gambling. The decision comes as states across the US have been 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 contended that prediction markets are swaps governed by the Commodity Exchange Act, which preempts state rules. The ruling may have implications for the ongoing debate over the regulation of prediction markets, with different courts issuing divergent rulings.
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 very broad and includes events on sports, politics, and other areas.