In a recent ruling, a federal judge in Arizona has temporarily blocked the state from pressing criminal charges against Kalshi, a prediction market provider. The decision comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi ruled that Arizona cannot proceed with an arraignment scheduled for Kalshi, following the state's announcement last month that it would be filing 20 criminal charges against the company for allegedly offering betting products that violate Arizona law. The judge's ruling stated that the CFTC has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act.
The judge also noted that allowing Arizona to proceed with its state action could potentially violate the Supremacy Clause, leading to the issuance of a temporary restraining order for a period of two weeks. The order prohibits Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets. The CFTC 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 CFTC has argued that prediction markets, also known as event contracts, are swaps subject to federal supervision and that its role preempts state law.
The ruling is the latest development in an ongoing dispute between the CFTC and several states, including Arizona, with mixed results in court. While some state courts have sided with the states, federal courts have produced different outcomes, with the Third Circuit Court of Appeals recently ruling that prediction markets are subject to CFTC rule.