In a recent ruling, a federal judge in Arizona has temporarily halted the state's attempt to bring criminal charges against prediction market provider Kalshi. 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, which was scheduled for Monday, April 13.
The state had previously announced plans to file 20 criminal charges against Kalshi 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. By allowing Arizona to proceed with its state action, the judge noted that it could potentially violate the Supremacy Clause.
As a result, the judge granted a temporary restraining order for a period of two weeks, with a pending motion for a preliminary injunction that could extend this order. The judge's decision prohibits Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on Commodity Futures Trading Commission-regulated markets. In response to the ruling, CFTC Chair Michael Selig expressed appreciation for the judge's decision, stating that Arizona's attempt to use state criminal law against companies that comply with federal law sets a dangerous precedent.
The Commodity Futures Trading Commission has argued that prediction markets, also known as event contracts, are swaps subject to federal supervision, which preempts state law. This view 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 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 state action against Kalshi came two days after denying Kalshi's own motion for a preliminary injunction against the state, which was argued on different grounds.