In a recent ruling, a federal judge in Arizona has blocked the state'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 ruled that Arizona cannot proceed with an arraignment of Kalshi as scheduled, after the state announced plans to file 20 criminal charges against the company for allegedly offering betting products that violate Arizona law. 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 federal law. As a result, Arizona's pursuit of state action may infringe upon the Supremacy Clause, leading 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 CFTC has welcomed the judge's decision, with Chair Michael Selig stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent. The CFTC's lawsuit against Arizona and other states argues that prediction markets are subject to federal supervision, and that state law is preempted. This issue has seen mixed results in court, with state courts often siding with states, while federal courts have reached different conclusions.
The Third Circuit Court of Appeals recently 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 ruling comes after denying Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.