Arizona Blocked from Pursuing Criminal Charges Against Kalshi by Federal Judge

In a significant development, a federal judge has intervened to prevent Arizona from pressing criminal charges against prediction market provider Kalshi, at least for the time being. This move comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi of the District of Arizona ruled that the state cannot proceed with an arraignment of Kalshi scheduled for April 13. The state had 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 Commodity Futures Trading Commission has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. The judge granted a temporary restraining order for two weeks, citing the potential violation of the Supremacy Clause if Arizona were to proceed with state action. The order restrains 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 Chairman, Michael Selig, welcomed the judge's decision, stating that Arizona's use of 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, fall under its supervision as swaps, and thus are subject to federal law. The case has seen mixed results in various courts, with state courts often siding with states and federal courts delivering different outcomes. Recently, the Third Circuit Court of Appeals ruled that prediction markets are subject to Commodity Futures Trading Commission 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 comes two days after he denied Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.