In a recent development, a federal judge has intervened to halt Arizona's pursuit of criminal charges against Kalshi, a prediction market provider, at least for the foreseeable future. This decision comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi of the District of Arizona ruled that Arizona cannot proceed with the scheduled arraignment of Kalshi, which was set for Monday, April 13.
Last month, Arizona announced its intention to file 20 criminal charges against Kalshi, alleging that the company had violated state law by offering betting products. However, Judge Liburdi's ruling states 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 expressed concern that Arizona's actions might contravene the Supremacy Clause and granted a temporary restraining order, effective for two weeks. Additionally, a pending motion for a preliminary injunction may lead to an extension of this order.
The ruling explicitly prohibits 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, fall under its supervision as swaps, thereby preempting state law.
This viewpoint has yielded mixed results in court, with state courts often siding with states and federal courts producing varying 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 decision to grant the CFTC's motion to block Arizona's action against Kalshi came two days after he denied Kalshi's own motion for a preliminary injunction against the state, which was based on different grounds.