In a recent ruling, a federal judge has temporarily barred the state of Arizona from pursuing criminal charges against Kalshi, a prediction market provider. This decision comes in response to a motion filed by the Commodity Futures Trading Commission. Judge Michael Liburdi of the District of Arizona 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 had offered betting products in violation of state law.
The judge's ruling stated that the CFTC has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. The judge granted a temporary restraining order for two weeks, citing the potential violation of the Supremacy Clause if Arizona were to proceed with state action. A pending motion for a preliminary injunction may extend the temporary restraining order. The CFTC Chair, Michael Selig, expressed appreciation for the judge's decision, stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent.
The CFTC has argued that prediction markets are swaps subject to federal supervision, which 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 Ninth Circuit Court of Appeals will hold a hearing on a consolidated case next week, allowing providers and other parties to present their arguments.