In a recent ruling, a federal judge in Arizona has temporarily blocked the state from bringing criminal charges against Kalshi, a prediction market provider. 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, alleging that the company's offerings 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. As a result, Arizona's pursuit of state action may violate the Supremacy Clause. The temporary restraining order will remain in effect for two weeks, and a pending motion for a preliminary injunction may extend this period.
The judge's decision has been welcomed by CFTC Chair Michael Selig, who expressed concerns that Arizona's actions could set a dangerous precedent by using state criminal law against companies that comply with federal law. The CFTC has argued that prediction markets are subject to federal supervision, and its role 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 CFTC rule, while a Nevada state court allowed the Gaming Control Board to temporarily block Kalshi.
The Ninth Circuit Court of Appeals declined to intervene in the Nevada action but will hold a hearing on a consolidated case next week. 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.