In a recent ruling, a federal judge has temporarily barred the state of Arizona from pursuing 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 made this ruling, stating that Arizona cannot proceed with an arraignment of Kalshi as previously scheduled. The state had announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate Arizona law.
However, Judge Liburdi found that the CFTC has a strong case in claiming that Arizona's gambling laws are preempted by the Commodity Exchange Act. The judge expressed concern that Arizona's actions might infringe upon the Supremacy Clause, leading to a temporary restraining order that will remain in effect for two weeks. A pending motion for a preliminary injunction may extend this order. The CFTC has welcomed the judge's decision, with Chair Michael Selig stating that Arizona's use of 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, fall under its supervision as swaps, and thus are subject to federal law. This viewpoint has yielded 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 regulation, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court ruling. Judge Liburdi's decision to block Arizona's action against Kalshi came two days after he denied Kalshi's motion for a preliminary injunction against the state, which was based on different grounds.