In a recent ruling, a federal judge has temporarily barred 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. District Judge Michael Liburdi of the District of Arizona ruled that an arraignment of Kalshi, scheduled for April 13, cannot proceed as planned.
Last month, Arizona announced its intention to file 20 criminal charges against Kalshi, alleging that the company's offerings violated state law. However, Judge Liburdi found that the CFTC is likely to succeed in its claim that Arizona's gambling laws are preempted by federal law, specifically the Commodity Exchange Act.
The judge granted a temporary restraining order, effective for two weeks, citing the potential violation of the Supremacy Clause if Arizona were to proceed with its state action. A pending motion for a preliminary injunction may extend this order. The CFTC Chairman, Michael Selig, welcomed 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, or event contracts, fall under its supervision as swaps, and thus federal law takes precedence over state law.
This viewpoint has yielded mixed results in court, with state courts often siding with states and federal courts producing varying outcomes. Recently, the Third Circuit Court of Appeals ruled that prediction markets are subject to CFTC regulation, 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 he denied Kalshi's motion for a preliminary injunction against Arizona, with the parties arguing on different grounds.