In a recent 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 decision comes in response to a motion filed by the Commodity Futures Trading Commission.
District Judge Michael Liburdi of the District of Arizona made the ruling on Friday, stating that Arizona cannot proceed with the scheduled arraignment of Kalshi on Monday, April 13. The state had previously announced plans to file 20 criminal charges against Kalshi, alleging that the company's offerings violated Arizona law. The judge's ruling was based on the finding that the CFTC is likely to succeed in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act.
As a result, Arizona's pursuit of state action may violate the Supremacy Clause, leading the judge to grant a temporary restraining order for two weeks. The order also notes that there is a pending motion for a preliminary injunction, which, if granted, would extend the temporary restraining order.
The CFTC Chair, Michael Selig, expressed appreciation for the judge's decision, stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent. The CFTC has argued that prediction markets, also known as event contracts, are swaps subject to federal supervision, and that this role preempts state law. The ruling is part of a larger debate, with mixed results in court. While state courts have often sided with states, federal courts have had different outcomes.
The Third Circuit Court of Appeals recently ruled that prediction markets are subject to CFTC rule, and the Ninth Circuit Court of Appeals will hold a hearing on a consolidated case next week. Judge Liburdi's decision to block Arizona's state action against Kalshi comes two days after denying Kalshi's own motion for a preliminary injunction against the state, which was argued on different grounds.