In a recent ruling, a federal judge in Arizona has temporarily barred the state from pressing criminal charges against Kalshi, a prediction market provider. This decision comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi ruled that Arizona cannot proceed with an arraignment of Kalshi, which was scheduled for Monday, April 13.
Last month, Arizona announced plans to file 20 criminal charges against Kalshi, alleging that the company's offerings violated state law. The judge's ruling stated that the Commodity Futures Trading Commission has demonstrated a likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act.
The court found that Arizona's pursuit of state action could potentially violate the Supremacy Clause, leading to the issuance of a temporary restraining order for a period of two weeks. Additionally, a pending motion for a preliminary injunction may extend this order. The judge's decision temporarily restrains Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on Commodity Futures Trading Commission-regulated markets.
In a statement, CFTC Chair Michael Selig expressed appreciation for the judge's decision, emphasizing that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent. The Commodity Futures Trading Commission has argued that prediction markets, also known as event contracts, are subject to its supervision as swaps, and that its role preempts state law. This view 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 Commodity Futures Trading Commission rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi.
Judge Liburdi's ruling in Arizona comes two days after denying Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.