In a recent ruling, a federal judge in Arizona has blocked the state's attempt to bring criminal charges against Kalshi, a prediction market provider, at least for the time being. 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 the scheduled arraignment of Kalshi, which was set for Monday, April 13. This development follows Arizona's announcement last month that it would be filing 20 criminal charges against Kalshi for allegedly offering betting products that violate state law.
The judge's decision was based on the finding that the Commodity Futures Trading Commission is likely to succeed in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. Furthermore, the judge noted that Arizona's actions could potentially violate the Supremacy Clause, leading to a temporary restraining order that will remain in effect for two weeks. A pending motion for a preliminary injunction may extend this order.
The Commodity Futures Trading Commission has welcomed the judge's decision, with Chair Michael Selig stating that the regulator appreciates the ruling. Selig emphasized that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent and that the court's order sends a clear message against intimidation tactics to circumvent federal law. The Commodity Futures Trading Commission has argued that prediction markets, also known as event contracts, fall under its supervision as swaps, and that its role preempts state law.
The outcomes of similar cases in state and federal courts have been mixed, with some state courts siding with the states and others ruling in favor of the Commodity Futures Trading Commission. Judge Liburdi's decision to grant the Commodity Futures Trading Commission's motion to block Arizona's state action against Kalshi came two days after denying Kalshi's own motion for a preliminary injunction against the state.