A federal appeals court has delivered a significant victory to Kalshi, a prediction market provider, by ruling that New Jersey cannot temporarily ban its operations. The Third Circuit Court of Appeals made this decision based on the understanding that Kalshi's products fall under the purview of the federal Commodity Exchange Act, rather than being subject to New Jersey's state gambling laws. The ruling, which was decided by a 2-1 vote, highlighted that Kalshi had self-certified its compliance with applicable laws and regulations, leading to presumptive approval of its event contracts under federal law. The Commodity Futures Trading Commission (CFTC) has not yet determined that Kalshi's sports-related event contracts are contrary to the public interest, nor has it commenced any enforcement actions against such contracts.
The ruling countered New Jersey's argument that Kalshi's event contracts do not qualify as 'swaps' covered by the Act, clarifying that the state's proposed requirements exceed what the Commodity Exchange Act demands. In a dissenting opinion, Circuit Judge Jane Roth argued that New Jersey's state rules do not undermine the objectives of the Commodity Exchange Act and characterized the products available on Kalshi's platform as 'sports gambling.' The decision comes as states across the U.S. are taking legal action against prediction market providers like Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC has maintained that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which preempts state rules.
The landscape of court rulings on this issue has been mixed, with some state courts initially favoring the states and federal district courts producing varied outcomes. Appeals courts have also been divided, with the Ninth Circuit recently declining to block a state enforcement action in Nevada, contrasting with the Third Circuit's ruling in favor of Kalshi.
CFTC Chairman Michael Selig emphasized the importance of defending the federal regulator's 'exclusive jurisdiction over these markets,' noting the broad definition of commodity under the statute, which encompasses events in sports, politics, and other areas without distinction.