In a significant development, a federal judge has temporarily blocked the state of Arizona from pressing 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 of the District of Arizona made this ruling, stating that Arizona cannot proceed with an arraignment of Kalshi as previously scheduled. The state had announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate Arizona law.
The judge's ruling noted that the Commodity Futures Trading Commission has a strong case that Arizona's gambling laws are preempted by federal law, specifically the Commodity Exchange Act. Allowing Arizona to proceed with its action could violate the Supremacy Clause, according to the judge. As a result, a temporary restraining order has been granted for two weeks, with the possibility of extension if a preliminary injunction is granted.
The order specifically restrains Arizona from enforcing its gambling laws against contracts listed on Commodity Futures Trading Commission-regulated markets. The Commodity Futures Trading Commission Chair, Michael Selig, welcomed the judge's decision, stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent. The Commodity Futures Trading Commission has argued that prediction markets are subject to its supervision as they are considered swaps, and thus, federal law preempts state law. This viewpoint has seen 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 fall under Commodity Futures Trading Commission rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi. Judge Liburdi's decision to block Arizona's action against Kalshi comes after denying Kalshi's own motion for a preliminary injunction against the state, albeit on different grounds.