In a recent ruling, a federal judge has halted Arizona's efforts to file criminal charges against prediction market provider Kalshi, responding to a motion filed by the Commodity Futures Trading Commission. The decision, made by District Judge Michael Liburdi of the District of Arizona, prevents Arizona from proceeding with an arraignment of Kalshi that was scheduled for April 13. This development comes after Arizona announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate state law.
The judge's ruling states that the Commodity Futures Trading Commission has made a strong case that Arizona's gambling laws are likely preempted by the Commodity Exchange Act. As a result, Arizona's pursuit of state action could potentially violate the Supremacy Clause, leading the judge to grant a temporary restraining order for a period of two weeks.
The order also notes the pending motion for a preliminary injunction, which, if granted, would extend the temporary restraining order. The judge's decision has been welcomed by CFTC Chair Michael Selig, who expressed appreciation for the ruling and emphasized 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 that federal law preempts state law. This stance has seen 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 related Nevada case, but will hold a hearing on a consolidated case next week, allowing various providers and parties to present their arguments.