In a recent ruling, a federal judge in Arizona has temporarily barred the state from filing criminal charges against Kalshi, a prediction market provider. This decision comes in response to a motion submitted by the Commodity Futures Trading Commission. District Judge Michael Liburdi granted the temporary restraining order, citing that the CFTC has a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by federal law.
The judge's ruling prevents Arizona from taking any enforcement actions under state law against Kalshi for the time being. The state had previously announced plans to file 20 criminal charges against Kalshi, alleging that the company's offerings violated Arizona law. However, the CFTC argued that Arizona's actions could infringe upon the Supremacy Clause, prompting the judge to grant the temporary restraining order. This order will remain in effect for two weeks, with a pending motion for a preliminary injunction that could potentially extend the restraining order.
The CFTC has welcomed the judge's decision, with Chair Michael Selig stating that the regulator appreciates the court's ruling. Selig emphasized that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent, and the court's order sends a clear message that intimidation is not an acceptable tactic to circumvent federal law. The CFTC has been engaged in a lawsuit against Arizona and two other states, arguing that prediction markets are subject to federal supervision and that state law is preempted. The case has seen mixed results in court, with state courts often siding with the 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 ruling has granted the CFTC's motion to block Arizona's state action against Kalshi, two days after denying Kalshi's own motion for a preliminary injunction against the state.