In a recent ruling, a federal judge has temporarily blocked the state of Arizona from filing criminal charges against Kalshi, a prediction market provider. This decision comes in response to a motion filed by the Commodity Futures Trading Commission.
Judge Michael Liburdi of the District of Arizona ruled that the state cannot proceed with an arraignment of Kalshi, which was scheduled for Monday, April 13. Arizona had previously announced plans to file 20 criminal charges against Kalshi, alleging that the company's offerings violated state law.
The court found that the CFTC has a strong case in claiming that Arizona's gambling laws are preempted by the Commodity Exchange Act, and that proceeding with state action could violate the Supremacy Clause. As a result, the judge granted a temporary restraining order, effective for two weeks, and noted that a pending motion for a preliminary injunction could potentially extend this order. The ruling states that Arizona is temporarily restrained from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets. CFTC 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 CFTC has argued that prediction markets, also known as event contracts, are swaps subject to federal supervision, and that this 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 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 the state, with the parties arguing on different grounds.