In a recent ruling, a federal judge in Arizona has temporarily halted the state's attempt to bring criminal charges against Kalshi, a prediction market provider. The 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, which was scheduled to take place on April 13. The state had previously announced its intention to file 20 criminal charges against Kalshi for allegedly offering betting products that 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 a state action could potentially 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 order specifically prohibits Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on Commodity Futures Trading Commission-regulated markets. The Commodity Futures Trading Commission chairman, Michael Selig, welcomed the judge's decision, stating that Arizona's use of state criminal law against companies that comply with federal law sets a dangerous precedent. The Commodity Futures Trading Commission has argued that prediction markets, also known as event contracts, are subject to its supervision and that its role preempts state law. The outcome of this case has been mixed, with state courts often siding with states and federal courts producing different results.
The Third Circuit Court of Appeals recently ruled that prediction markets are subject to Commodity Futures Trading Commission rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court case, allowing the state to block Kalshi. Judge Liburdi's ruling comes two days after he denied Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.