A significant court ruling has given Kalshi, a prediction market platform, a crucial victory against New Jersey's efforts to shut down its sports markets. The Third Circuit Court of Appeals decided that the federal Commodity Exchange Act takes precedence over state laws, thereby preventing New Jersey from pursuing enforcement action. This decision was made in a 2-1 vote, with the majority opinion stating that Kalshi's products fall under federal jurisdiction rather than being subject to state gambling laws.
The ruling highlighted that Kalshi had self-certified compliance with applicable laws and regulations, resulting in presumptive approval under federal law. Furthermore, the Commodity Futures Trading Commission (CFTC) has not determined that Kalshi's sports-related event contracts are contrary to the public interest, and no enforcement actions have been commenced. The court rejected New Jersey's argument that Kalshi's event contracts are not covered by the Act, as it would impose an unnecessary requirement.
In contrast, a dissenting opinion argued that the state rules do not undermine congressional objectives and that the products offered on Kalshi's platform constitute sports gambling. The decision comes as states across the US have been filing lawsuits or issuing cease-and-desist orders against prediction market providers, alleging violations of state gambling laws.
The CFTC has maintained that prediction markets are swaps governed by the Commodity Exchange Act, which preempts state rules. The ruling has significant implications, as appeals courts have issued mixed decisions on the matter. While the Third Circuit's ruling suggests that prediction market providers may prevail in their argument, the Ninth Circuit has declined to block another state enforcement action.
The CFTC Chairman has emphasized the importance of defending the regulator's exclusive jurisdiction over these markets, and the CFTC has filed an amicus curiae brief in support of this position.