In a recent ruling, a federal judge has temporarily barred the state of Arizona from pressing criminal charges against Kalshi, a prediction market provider. 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 an arraignment of Kalshi, which was scheduled for 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 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 a state action may violate the Supremacy Clause, prompting the judge to grant a temporary restraining order for two weeks, with a pending motion for a preliminary injunction that could extend this order. The judge's decision has been welcomed by CFTC Chair Michael Selig, who expressed appreciation for the ruling and emphasized that using state criminal law against companies complying with federal law sets a dangerous precedent.
The CFTC's lawsuit against Arizona and two other states argues that prediction markets, also known as event contracts, are subject to the agency's supervision as swaps, thereby preempting state law. The case has yielded mixed results in court, with state courts often siding with states and federal courts producing different outcomes.
Most recently, the Third Circuit Court of Appeals ruled that prediction markets fall under 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 decision to grant the CFTC's motion to block Arizona's state action against Kalshi came two days after denying Kalshi's own motion for a preliminary injunction against the state, which was argued on different grounds.