In a significant victory for prediction market provider Kalshi, a federal appeals court has ruled that New Jersey cannot temporarily ban the company's operations. The Third Circuit Court of Appeals decided in a 2-1 ruling that Kalshi's products fall under the federal Commodity Exchange Act, taking precedence over New Jersey's state gambling laws.
The ruling stated that Kalshi had self-certified compliance with applicable laws and regulations, and the Commodity Futures Trading Commission (CFTC) had not determined that Kalshi's sports-related event contracts were contrary to the public interest. The CFTC has not initiated any enforcement actions against such contracts, according to the ruling. The decision comes as states across the US have begun filing lawsuits or issuing cease-and-desist orders against prediction market providers like Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC has argued that prediction markets are swaps governed by the Commodity Exchange Act, which preempts state rules.
Circuit Judge Jane Roth dissented, arguing that New Jersey's state rules did not undermine congressional objectives under the Commodity Exchange Act and that Kalshi's products constituted sports gambling. The ruling highlights the ongoing debate over the regulation of prediction markets, with different courts issuing conflicting decisions. While the Third Circuit's ruling suggests that prediction market providers may prevail in their argument that the Commodity Exchange Act preempts state rules, the Ninth Circuit has declined to block another state enforcement action, allowing Nevada to secure a temporary restraining order and preliminary injunction against Kalshi.
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 broad and includes events on sports, politics, and other areas.