In a recent ruling, a federal judge has temporarily barred the state of Arizona from pressing 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 Monday, April 13. The state had announced plans to file 20 criminal charges against Kalshi, alleging that the company's offerings violated Arizona's gambling laws.
However, Judge Liburdi found that the CFTC has a strong case in arguing that Arizona's gambling laws are preempted by the Commodity Exchange Act. The judge granted a temporary restraining order, effective for two weeks, citing concerns that Arizona's actions might violate the Supremacy Clause. This order prevents Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets.
In a statement, 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, and that 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 Ninth Circuit Court of Appeals will hold a hearing on a consolidated case next week, allowing various providers and parties to present their arguments.