In a recent ruling, a federal judge has temporarily blocked Arizona's attempt to bring criminal charges against Kalshi, a prediction market provider. This decision was made 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 Monday, April 13. Last month, Arizona announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate state law.
The court found that the CFTC has a strong case in claiming 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, leading the judge to grant a temporary restraining order for two weeks.
A pending motion for a preliminary injunction may extend this order. The temporary restraining order states that Arizona is temporarily restrained from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets. CFTC Chair Michael Selig welcomed the judge's decision, stating 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 swaps subject to federal supervision and that its role preempts state law. This view has seen mixed results in court, with state courts often siding with states and federal courts producing different outcomes. Recently, 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 state action against Kalshi just two days after denying Kalshi's own motion for a preliminary injunction against the state, which was argued on different grounds.