A federal appeals court has delivered a significant victory to prediction market provider Kalshi, ruling that New Jersey cannot temporarily ban the platform. The Third Circuit Court of Appeals panel, in a 2-1 decision, found that Kalshi's products fall under the federal Commodity Exchange Act, rather than being subject to New Jersey state gambling laws. The ruling stated that Kalshi had self-certified compliance with applicable laws and regulations, and the Commodity Futures Trading Commission (CFTC) had not determined that Kalshi's sports-related event contracts were contrary to the public interest. The CFTC has not initiated any enforcement actions against such contracts.
New Jersey had argued that Kalshi's event contracts did not qualify as 'swaps' under the Act, but the court found this requirement to be overly stringent. In a dissenting opinion, Circuit Judge Jane Roth argued that New Jersey's state rules did not undermine the congressional objectives of the Commodity Exchange Act and that Kalshi's products constituted sports gambling. The ruling comes as states across the US have been 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 swaps governed by the Commodity Exchange Act, which preempts state rules.
Courts have issued conflicting rulings, with some state courts granting temporary restraining orders or preliminary injunctions in favor of the states, while federal district courts have been more divided. The Third Circuit's ruling suggests that prediction market providers may prevail in their argument that the Commodity Exchange Act preempts state rules, but 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 federal regulator's 'exclusive jurisdiction over these markets,' and the CFTC has filed an amicus curiae brief with the Ninth Circuit ahead of a hearing later this month.