In a recent ruling, a federal judge in Arizona has temporarily halted the state's attempt to bring criminal charges against Kalshi, a prediction market provider. The 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. The state had previously announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate Arizona law.
The judge's ruling stated that the CFTC has shown it is likely to succeed in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. Allowing Arizona to proceed with a state action could potentially violate the Supremacy Clause, the judge noted, granting a temporary restraining order for two weeks. A pending motion for a preliminary injunction could potentially extend this order. The judge's decision temporarily restrains Arizona 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, 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. The issue has seen 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 ruling came two days after he denied Kalshi's own motion for a preliminary injunction against the state, with the parties arguing on different grounds.