In a recent ruling, a federal judge has temporarily halted Arizona's efforts 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 (CFTC). District Judge Michael Liburdi of the District of Arizona ruled that Arizona cannot proceed with an arraignment of Kalshi, which was scheduled for April 13, after the state announced plans to file 20 criminal charges against the company for allegedly offering betting products in violation of state law.
The judge's decision was based on the CFTC's argument that Arizona's gambling laws are preempted by the Commodity Exchange Act, citing a likely success on the merits of its claim. The ruling also noted that proceeding with state action could violate the Supremacy Clause, leading to a temporary restraining order for two weeks. A pending motion for a preliminary injunction may extend this order. The CFTC Chair, Michael Selig, expressed appreciation for the judge's decision, stating that Arizona's use of state criminal law against federally compliant companies sets a dangerous precedent.
The CFTC has argued that prediction markets, or event contracts, are swaps subject to federal supervision, which preempts state law. This view has seen mixed results in court, with federal courts yielding different outcomes than state courts. The Ninth Circuit Court of Appeals will hold a hearing on a consolidated case next week, allowing providers and other parties to present their arguments.