In a recent ruling, a federal judge has temporarily blocked Arizona's attempt to bring criminal charges against Kalshi, a prediction market provider. The decision came in response to a motion filed by the Commodity Futures Trading Commission (CFTC). District 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. This development follows Arizona's announcement last month that it would file 20 criminal charges against Kalshi for allegedly offering betting products that violate 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 also noted that allowing Arizona to proceed with its state action could potentially violate the Supremacy Clause. As a result, a temporary restraining order has been granted for two weeks, with a pending motion for a preliminary injunction that could extend the order if granted. The ruling has been welcomed by CFTC Chair Michael Selig, who expressed appreciation for the judge's decision.
Selig emphasized that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent and that the court's order sends a clear message against intimidation tactics to circumvent federal law. The CFTC has argued that prediction markets, also known as event contracts, fall under its supervision as swaps, and that its role 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 CFTC rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi. Judge Liburdi's decision to grant the CFTC's motion to block Arizona's state action against Kalshi came two days after denying Kalshi's own motion for a preliminary injunction against the state, with the parties arguing on different grounds.