In a recent ruling, a federal judge in Arizona has blocked the state from pursuing criminal charges against Kalshi, a prediction market provider, at least for the time being. This 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 of Kalshi as scheduled, after the state announced plans to file 20 criminal charges against the company for allegedly offering betting products that violate Arizona law. The judge's ruling stated that the Commodity Futures Trading Commission has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. The court found 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. Additionally, a pending motion for a preliminary injunction could further extend this order.
The judge's decision temporarily restrains Arizona from enforcing its gambling laws in relation to contracts listed on Commodity Futures Trading Commission-regulated markets. The Commodity Futures Trading Commission Chair, Michael Selig, expressed appreciation for 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 swaps, preempting state law.
This view has yielded mixed results in court, with state courts often siding with states and federal courts producing varying outcomes. The Third Circuit Court of Appeals recently ruled that prediction markets fall under the Commodity Futures Trading Commission's rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi.
Judge Liburdi's ruling comes two days after denying Kalshi's motion for a preliminary injunction against Arizona, with the parties arguing on different grounds.