In a recent ruling, a federal judge in Arizona has temporarily barred the state from bringing criminal charges against prediction market provider Kalshi, in response to a motion filed by the Commodity Futures Trading Commission. The decision, made by District Judge Michael Liburdi, prevents Arizona from proceeding with an arraignment of Kalshi that was scheduled for Monday, April 13.
This comes after Arizona announced plans to file 20 criminal charges against Kalshi for allegedly violating state law by offering betting products. The judge's ruling stated that the Commodity Futures Trading Commission has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. As a result, Arizona's pursuit of state action could potentially violate the Supremacy Clause.
The temporary restraining order, which will remain in effect for two weeks, also notes the pending motion for a preliminary injunction that could further extend the order. The judge's decision has been welcomed by CFTC Chair Michael Selig, who emphasized that using state criminal law to target companies complying with federal law sets a dangerous precedent. The CFTC has argued that prediction markets, also known as event contracts, fall under its supervision as swaps, and that its authority 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 regulation, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi. Judge Liburdi's ruling in favor of the CFTC's motion to block Arizona's state action against Kalshi came two days after he denied Kalshi's own motion for a preliminary injunction against the state, with the parties arguing on different grounds.