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, after the state announced plans to file 20 criminal charges against the company for allegedly violating Arizona law by offering betting products. 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 federal law, specifically the Commodity Exchange Act.
The court's decision to grant a temporary restraining order for two weeks was based on the potential violation of the Supremacy Clause if Arizona were to proceed with state action. A pending motion for a preliminary injunction could further extend this order.
The judge's ruling temporarily restrains Arizona from enforcing its gambling laws in any criminal or civil actions related to contracts listed on Commodity Futures Trading Commission-regulated markets. The Commodity Futures Trading Commission Chair, Michael Selig, welcomed the judge's decision, stating that Arizona's use of 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, fall under its supervision as swaps, and thus are subject to federal law, which preempts 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 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 came two days after denying Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.