In a recent development, a federal judge has intervened to stop Arizona from pressing criminal charges against Kalshi, a prediction market provider, at least for the moment. 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 the ruling on Friday, stating that Arizona cannot proceed with the scheduled arraignment of Kalshi on Monday, April 13. Last month, Arizona announced its intention to file 20 criminal charges against Kalshi, alleging that the company had violated state law by offering betting products. The judge's ruling noted that the Commodity Futures Trading Commission has a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act.
Allowing Arizona to proceed with its state action could potentially violate the Supremacy Clause, leading the judge to grant a temporary restraining order for a period of two weeks. Additionally, there is a pending motion for a preliminary injunction that could extend this order.
The temporary restraining order 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. This decision has been welcomed by CFTC Chair Michael Selig, who expressed appreciation for the judge's ruling, emphasizing that using 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, and thus are subject to federal law, which preempts state law.
The outcomes of similar cases in state and federal courts have been mixed, with some state courts siding with the states and others supporting the federal agency's stance. The Third Circuit Court of Appeals recently ruled that prediction markets are indeed subject to CFTC rules, while the Ninth Circuit Court of Appeals has chosen not to intervene in a Nevada state court's decision to block Kalshi, but will hear a consolidated case soon. Judge Liburdi's decision to grant the CFTC's motion to block Arizona's action against Kalshi came two days after he denied Kalshi's own motion for a preliminary injunction against the state, with the parties arguing on different grounds.