In a recent ruling, a federal judge has temporarily barred the state of Arizona from pursuing criminal charges against Kalshi, a prediction market provider. 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 an arraignment of Kalshi, which was scheduled for April 13, after the state announced plans to file 20 criminal charges against the company for allegedly offering betting products in violation of Arizona law.
The judge's ruling stated that the Commodity Futures Trading Commission has demonstrated a likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. Allowing Arizona to proceed with its state action could violate the Supremacy Clause, prompting the judge to grant a temporary restraining order for two weeks, with a pending motion for a preliminary injunction that could extend the order. The judge's decision prohibits Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on Commodity Futures Trading Commission-regulated markets.
The Commodity Futures Trading Commission Chair, Michael Selig, expressed appreciation for 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 Commodity Futures Trading Commission has argued that prediction markets, also known as event contracts, are swaps subject to federal supervision, and its role preempts state law. This view 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 ruling came two days after denying Kalshi's motion for a preliminary injunction against Arizona, with the parties arguing on different grounds.