In a recent ruling, a federal judge has temporarily blocked Arizona's attempt to bring criminal charges against Kalshi, a prediction market provider. The decision comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi of the District of Arizona ruled that Arizona cannot proceed with an arraignment of Kalshi as planned, citing that the CFTC has a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by federal law. The judge's order, which is in effect for two weeks, prevents Arizona from enforcing its gambling laws against Kalshi, and also notes that there is a pending motion for a preliminary injunction that could extend the temporary order.
The CFTC has welcomed the judge's decision, stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent. The regulator argues that prediction markets are swaps subject to federal supervision, and that state law should not apply. The case is part of a broader debate about the regulation of prediction markets, with mixed results in state and federal courts. While some state courts have sided with states, federal courts have had varying outcomes, with the Third Circuit Court of Appeals recently ruling that prediction markets are subject to CFTC rule.
The Ninth Circuit Court of Appeals is set to hold a hearing on a consolidated case next week, allowing providers and other parties to argue their positions.