In a temporary ruling, US District Judge Michael Liburdi has prohibited the state of Arizona from proceeding with criminal charges against Kalshi, a prediction market provider, in response to a motion filed by the Commodity Futures Trading Commission. The decision 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, which will remain in effect for two weeks, was based on the likelihood that the CFTC would succeed in its claim that Arizona's gambling laws are preempted by federal law.
This temporary restraining order may be extended if a preliminary injunction is granted. The CFTC has argued that prediction markets, also known as event contracts, fall under its regulatory supervision as swaps, thereby preempting state law. The regulator welcomed the judge's decision, stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent.
The case is part of a broader dispute between the CFTC and several states regarding the regulation of prediction markets, with mixed results in state and federal courts. The Ninth Circuit Court of Appeals is scheduled to hold a hearing on a consolidated case involving various providers and parties, while the Third Circuit Court of Appeals has ruled that prediction markets are subject to CFTC regulation.