In a recent ruling, a federal judge has temporarily halted Arizona's attempts to bring 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 Arizona cannot proceed with an arraignment of Kalshi as planned, following the state's announcement last month that it would be filing 20 criminal charges against the company for allegedly offering betting products in violation of state law.
The judge's ruling stated that the CFTC 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 proceeding with state action could potentially violate the Supremacy Clause, leading the judge to grant a temporary restraining order for a period of two weeks.
Additionally, a pending motion for a preliminary injunction may further extend this order. The judge's decision has been welcomed by CFTC Chair Michael Selig, who expressed appreciation for the ruling and emphasized that using state criminal law to intimidate companies complying with federal law sets a dangerous precedent.
The CFTC has argued that prediction markets, also known as event contracts, fall under its supervision as swaps, and that its authority takes precedence over state law. This viewpoint 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 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 denying Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.