In a significant decision, a federal appeals court has blocked New Jersey's bid to temporarily ban sports prediction market provider Kalshi, handing the company a crucial victory in its battle against state-level enforcement actions. The Third Circuit Court of Appeals, in a 2-1 ruling, found that Kalshi's products fall under the federal Commodity Exchange Act, taking precedence over New Jersey state gambling laws.
The court stated that Kalshi had self-certified compliance with applicable laws and regulations, and as such, its event contracts were 'presumptively approved' under federal law. The Commodity Futures Trading Commission (CFTC) has yet to determine that Kalshi's sports-related event contracts are contrary to the public interest. New Jersey had argued that Kalshi's event contracts did not qualify as 'swaps' covered by the Act, but the court ruled that this requirement was too stringent.
In a dissenting opinion, Circuit Judge Jane Roth contended that New Jersey state rules did not undermine the objectives of the Commodity Exchange Act and that Kalshi's products constituted sports gambling. The ruling comes as states across the US have begun filing lawsuits or issuing cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC has maintained that prediction markets are governed by the Commodity Exchange Act, which preempts state rules.
The decision has significant implications for the industry, with different courts issuing conflicting rulings. While the Third Circuit's ruling suggests that prediction market providers may prevail in their argument that federal law 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 regulator's 'exclusive jurisdiction over these markets,' stating that the definition of commodity is broad and encompasses various events, including sports and politics.