In a recent ruling, a federal judge in Arizona has temporarily barred the state from pressing criminal charges against Kalshi, a provider of prediction market services. This decision comes in response to a motion filed by the Commodity Futures Trading Commission.
District Judge Michael Liburdi ruled that Arizona cannot proceed with an arraignment of Kalshi, which was scheduled for Monday, April 13, after the state announced plans to file 20 criminal charges against the company for allegedly violating Arizona law by offering betting products. The judge's ruling stated that the CFTC has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. The court found that allowing Arizona to proceed with its state action could potentially violate the Supremacy Clause, leading to the issuance of a temporary restraining order for a period of two weeks.
Additionally, a pending motion for a preliminary injunction could further extend this order. The judge's decision was welcomed by CFTC Chair Michael Selig, who expressed appreciation for the ruling and emphasized that using state criminal law to target 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 its authority supersedes state law.
However, the outcomes of related cases in state and federal courts have been mixed, with some state courts siding with the states and others supporting the CFTC's position.