In a recent ruling, a federal judge has temporarily blocked Arizona's attempt to bring criminal charges against Kalshi, a provider of prediction markets, in response to a motion filed by the Commodity Futures Trading Commission. The decision, made by District Judge Michael Liburdi, prevents Arizona from proceeding with an arraignment scheduled for Kalshi, which the state had planned to charge with 20 counts of violating Arizona law by offering betting products. 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 federal law, specifically the Commodity Exchange Act. As a result, Arizona's actions may be in violation of the Supremacy Clause, leading the judge to grant a temporary restraining order that will remain in effect for two weeks.
A pending motion for a preliminary injunction may extend this order. According to the ruling, Arizona is temporarily prohibited from enforcing its gambling laws in relation to contracts listed on Commodity Futures Trading Commission-regulated markets. The Commodity Futures Trading Commission Chair, Michael Selig, expressed appreciation for the judge's decision, stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent. The case is part of a broader dispute between the Commodity Futures Trading Commission and several states, including Arizona, over the regulation of prediction markets.
While some state courts have sided with the states, federal courts have yielded mixed results, with the Third Circuit Court of Appeals recently ruling that prediction markets fall under the Commodity Futures Trading Commission's supervision.