In a recent ruling, a federal judge has intervened to prevent the state of Arizona from pressing criminal charges against Kalshi, a company that operates a prediction market, at least for the foreseeable future. This decision comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi of the District of Arizona made this ruling on Friday, stating that Arizona cannot proceed with the scheduled arraignment of Kalshi on Monday, April 13.
Last month, Arizona announced its intention to file 20 criminal charges against Kalshi, alleging that the company had violated state law by offering betting products. The judge's ruling was based on the finding that the Commodity Futures Trading Commission has a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by federal law, specifically the Commodity Exchange Act. The judge expressed concern that allowing Arizona to proceed with its state action could violate the Supremacy Clause, which gives federal law precedence over state law. As a result, the judge granted a temporary restraining order for two weeks, with the possibility of extension if a preliminary injunction is granted.
The order prohibits Arizona from enforcing its gambling laws against Kalshi in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets. The Commodity Futures Trading Commission welcomed the judge's decision, with Chair Michael Selig stating that the regulator appreciates the ruling.
Selig noted that Arizona's attempt to use state criminal law against companies that comply with federal law sets a dangerous precedent and that the court's order sends a clear message that intimidation is not an acceptable tactic to circumvent federal law. 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 had mixed results in court, with state courts often siding with states and federal courts having 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 comes two days after he denied Kalshi's motion for a preliminary injunction against Arizona, with the parties arguing on different grounds.