In a recent ruling, a federal judge in Arizona has blocked the state from filing criminal charges against prediction market provider Kalshi, at least for the time being, in response to a request from the Commodity Futures Trading Commission. District Judge Michael Liburdi's decision, made on Friday, 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 last month, alleging that the company had offered betting products in violation of state law.
The judge's ruling states 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, prompting the judge to grant a temporary restraining order that will remain in effect for two weeks.
The judge noted that there is also a pending motion for a preliminary injunction, which, if granted, would extend the temporary restraining order. The ruling specifically states that defendants are temporarily restrained from enforcing Arizona's gambling laws in any criminal or civil enforcement actions related to contracts listed on Commodity Futures Trading Commission-regulated designated contract markets.
In response to the decision, CFTC Chair Michael Selig expressed appreciation, stating that Arizona's attempt to use state criminal law against companies that comply with federal law sets a dangerous precedent. The Commodity Futures Trading Commission has argued that prediction markets, also known as event contracts, are swaps subject to the agency's supervision, 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 Commodity Futures Trading Commission 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 Commodity Futures Trading Commission's motion to block Arizona's state action against Kalshi came just two days after he denied Kalshi's own motion for a preliminary injunction against the state.