In a recent ruling, a federal judge has intervened to stop Arizona from pressing criminal charges against Kalshi, a prediction market provider, at least for the time being. This decision comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi of the District of Arizona made this ruling on Friday, stating that Arizona cannot proceed with the scheduled arraignment of Kalshi on Monday, April 13. Arizona had previously announced plans to file 20 criminal charges against Kalshi, alleging that the company's offerings violated state law by constituting betting products.
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 expressed concern that Arizona's pursuit of state action could violate the Supremacy Clause, leading to the issuance of a temporary restraining order that will remain in effect for two weeks. Additionally, a pending motion for a preliminary injunction could potentially extend this order.
The ruling explicitly states that Arizona is temporarily restrained 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, emphasizing that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent.
The CFTC has been arguing that prediction markets, also known as event contracts, fall under its supervision as swaps, thereby preempting state law. This stance 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 ruling in favor of the CFTC's motion to block Arizona's state action against Kalshi came two days after he denied Kalshi's own motion for a preliminary injunction against the state, which was argued on different grounds.