In a recent ruling, a federal judge in Arizona has temporarily barred the state from pursuing criminal charges against prediction market provider Kalshi, in response to a motion filed by the Commodity Futures Trading Commission. The decision, made by District Judge Michael Liburdi, prevents Arizona from proceeding with an arraignment scheduled for Kalshi, which the state had planned to charge with 20 counts of violating Arizona law by offering betting products.
The judge's ruling states that the Commodity Futures Trading Commission has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by federal law, specifically the Commodity Exchange Act. As a result, the court has granted a temporary restraining order, effective for two weeks, which may be extended if a preliminary injunction is granted.
The order prohibits Arizona from enforcing its gambling laws in any criminal or civil actions related to contracts listed on Commodity Futures Trading Commission-regulated markets. This development is part of a broader dispute between the Commodity Futures Trading Commission and several states, including Arizona, over the regulation of prediction markets, also known as event contracts. The Commodity Futures Trading Commission argues that these markets are subject to federal supervision, while the states claim the right to regulate them under their own laws.
The issue has yielded mixed results in various courts, with some state courts siding with the states and federal courts producing different outcomes. In a statement, the chair of the Commodity Futures Trading Commission welcomed the judge's decision, emphasizing that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent and that intimidation is not an acceptable way to circumvent federal law.