In a recent ruling, a federal judge has temporarily halted Arizona's plans to bring 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.
The state had previously announced its intention to file 20 criminal charges against Kalshi, alleging that the company's offerings violated 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.
As a result, Arizona's pursuit of a state action could potentially violate the Supremacy Clause. The temporary restraining order, which will remain in effect for two weeks, 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 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 has declined to intervene in a Nevada state court's decision to block Kalshi, but will hold a hearing on a consolidated case next week.
Judge Liburdi's ruling came two days after he denied Kalshi's motion for a preliminary injunction against Arizona, with the parties arguing on different grounds.