In a recent ruling, a federal judge has halted Arizona's attempt to bring criminal charges against Kalshi, a prediction market provider, at least for the time being. This decision comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi of the District of Arizona ruled that Arizona cannot proceed with the scheduled arraignment of Kalshi, which was set for Monday, April 13. Last month, Arizona announced plans to file 20 criminal charges against Kalshi, alleging that the company had offered betting products in violation of state 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. Allowing Arizona to proceed with its state action could potentially violate the Supremacy Clause, the judge noted, and a temporary restraining order was granted for a period of two weeks. Additionally, a pending motion for a preliminary injunction could further extend this order. According to Paradigm senior regulatory counsel Stefan Schropp, the judge's ruling 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.
In a statement, CFTC Chair Michael Selig expressed appreciation for the judge's decision, emphasizing that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent. The CFTC has argued that prediction markets, also known as event contracts, are subject to its supervision as swaps, and that its authority preempts state law. This viewpoint has yielded mixed results in court, with state courts often siding with states and federal courts producing different outcomes.
Earlier this week, the Third Circuit Court of Appeals 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 granted the CFTC's motion to block Arizona's action against Kalshi just two days after denying Kalshi's own motion for a preliminary injunction against the state, with the parties arguing on different grounds.