In a recent ruling, a federal judge in Arizona has temporarily barred the state from proceeding with 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 ruled that Arizona cannot proceed with an arraignment of Kalshi, which was scheduled for Monday, April 13, after the state announced plans to file 20 criminal charges against the company for allegedly violating Arizona 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. The court found that Arizona's pursuit of a state action could potentially violate the Supremacy Clause, leading to the issuance of a temporary restraining order for a period of two weeks. The judge noted that a pending motion for a preliminary injunction, if granted, would extend the temporary restraining order.
The ruling specifically restrained and enjoined Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated designated contract markets. CFTC 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 CFTC has argued that prediction markets, also known as event contracts, are swaps subject to federal supervision, which 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 CFTC 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 CFTC's motion to block Arizona's state action against Kalshi came two days after denying Kalshi's own motion for a preliminary injunction against the state, which was argued on different grounds.