In a temporary reprieve for prediction market provider Kalshi, a federal judge has intervened to stop Arizona from pressing criminal charges, at least for the time being, in response to a request from the Commodity Futures Trading Commission. District Judge Michael Liburdi of the District of Arizona made the ruling on Friday, stating that Arizona cannot proceed with an arraignment of Kalshi that was scheduled for Monday, April 13. This decision comes after Arizona announced plans to file 20 criminal charges against Kalshi last month, alleging that the company had violated state law by offering betting products. The judge's ruling noted that the Commodity Futures Trading Commission has a strong case in arguing that Arizona's gambling laws are superseded by the Commodity Exchange Act, and that allowing the state to proceed could violate the Supremacy Clause.
As a result, Judge Liburdi granted a temporary restraining order for two weeks, with the possibility of it being extended if a preliminary injunction is granted. The order specifically restrains Arizona from enforcing its gambling laws in any criminal or civil actions related to contracts listed on Commodity Futures Trading Commission-regulated markets. This development has been 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 Commodity Futures Trading Commission has been arguing that prediction markets, also known as event contracts, fall under its supervision as swaps, and thus are subject to federal law, which preempts state law.
However, the outcomes of similar cases in state courts have been mixed, with some siding with the states. In contrast, federal courts have shown varying results, with the Third Circuit Court of Appeals recently ruling that prediction markets are indeed subject to Commodity Futures Trading Commission rule.
The Ninth Circuit Court of Appeals has chosen not to intervene in a similar case in Nevada but will hear arguments on a consolidated case soon. Judge Liburdi's decision to block Arizona's action against Kalshi comes two days after he denied a motion by Kalshi for a preliminary injunction against the state, albeit on different grounds.