In a recent ruling, a federal judge has temporarily blocked Arizona's attempt to bring criminal charges against Kalshi, a prediction market provider. This decision was made 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 the scheduled arraignment of Kalshi, which was set for Monday, April 13. The state had previously announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate Arizona law. 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 preempted by the Commodity Exchange Act.
As a result, Arizona's pursuit of state action may be in violation of the Supremacy Clause. The temporary restraining order will be in effect for two weeks, with a pending motion for a preliminary injunction that could potentially extend the order.
The judge's decision has been welcomed by CFTC Chair Michael Selig, who noted that Arizona's attempt to use 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, fall under its supervision as swaps, and that its role takes precedence over state law. This viewpoint has yielded mixed results in court, with state courts often siding with states and federal courts producing different outcomes.
The Third Circuit Court of Appeals recently ruled that prediction markets are subject to CFTC regulation, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi. Judge Liburdi's ruling comes two days after he denied Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.