In a recent ruling, a federal judge in Arizona has temporarily halted the state's attempt to bring 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 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 violating Arizona law by offering betting products. The judge's ruling stated that the Commodity Futures Trading Commission has a strong case in claiming that Arizona's gambling laws are preempted by the Commodity Exchange Act.
Allowing Arizona to proceed with state action could potentially violate the Supremacy Clause, leading the judge to grant a temporary restraining order for two weeks. The order also noted a pending motion for a preliminary injunction, which, if granted, would extend the temporary restraining order. The judge's decision was welcomed by CFTC Chair Michael Selig, who expressed concern that Arizona's actions could set a dangerous precedent by using state criminal law against companies that comply with federal law.
The CFTC has argued that prediction markets, also known as event contracts, fall under its supervision as swaps, and thus are subject to federal law. This view has yielded mixed results in court, with state courts often siding with states and federal courts producing different outcomes.
The Third Circuit Court of Appeals recently 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's ruling in favor of the CFTC's motion to block Arizona's state action against Kalshi came two days after he denied Kalshi's own motion for a preliminary injunction against the state, with the parties arguing on different grounds.