In a recent development, a federal judge has intervened to stop the state of Arizona from filing 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.
The state had previously announced its intention to file 20 criminal charges against Kalshi, alleging that the company's offerings were in violation of Arizona's gambling laws. The judge's ruling found that the CFTC has a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act.
As a result, Arizona's pursuit of state action could potentially violate the Supremacy Clause. The temporary restraining order, which will be in effect for two weeks, also notes the pending motion for a preliminary injunction that could potentially extend the order. According to Paradigm senior regulatory counsel Stefan Schropp, the judge's ruling includes a provision that temporarily restrains and enjoins 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 expressed appreciation for the judge's decision, stating that Arizona's use of state criminal law against companies that comply 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 its role preempts state law.
This stance 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 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 in favor of the CFTC's motion to block Arizona's state action against Kalshi comes two days after he denied Kalshi's own motion for a preliminary injunction against the state, with the parties arguing on different grounds.