In a recent ruling, a federal judge has temporarily blocked the state of Arizona from pressing criminal charges against Kalshi, a provider of prediction markets, in response to a request from the Commodity Futures Trading Commission. The decision, made by District Judge Michael Liburdi of the District of Arizona, prevents Arizona from proceeding with an arraignment of Kalshi that was scheduled for Monday, April 13. This development comes after Arizona announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate state law.
The judge's ruling states that the Commodity Futures Trading Commission has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are superseded by the Commodity Exchange Act. As a result, Arizona's pursuit of state action could potentially violate the Supremacy Clause, leading the judge to grant a temporary restraining order for a period of two weeks.
The order also notes the existence of a pending motion for a preliminary injunction, which if granted, would extend the temporary restraining order. The court's decision has been welcomed by CFTC Chair Michael Selig, who expressed appreciation for the judge's ruling and emphasized that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent. The CFTC has argued that prediction markets, also known as event contracts, fall under its supervision as swaps, and that its authority preempts state law.
This viewpoint 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 regulation, 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 comes two days after he denied Kalshi's own motion for a preliminary injunction against the state, albeit on different grounds.