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 was made 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 as scheduled, after the state announced plans to file 20 criminal charges against the company for allegedly violating Arizona law by offering betting products. The judge's ruling stated that the CFTC has shown it is likely to succeed in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. He also noted that Arizona proceeding with the state action could violate the Supremacy Clause, leading to the issuance of a temporary restraining order for two weeks. The judge's order temporarily restrains Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets.
CFTC Chair Michael Selig welcomed the judge's decision, stating that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent. The CFTC has argued that prediction markets, also known as event contracts, are swaps subject to federal supervision and that its role preempts state law. The case has seen mixed results in court, with state courts often siding with states and federal courts having different outcomes. The Ninth Circuit Court of Appeals will hold a hearing on a consolidated case next week, allowing various providers and parties to argue their positions.