In a recent ruling, District Judge Michael Liburdi of the District of Arizona has temporarily barred the state from bringing criminal charges against Kalshi, a prediction market provider. This decision comes in response to a motion filed by the Commodity Futures Trading Commission.
The ruling, made on Friday, prevents Arizona from proceeding with an arraignment of Kalshi that was scheduled for Monday, April 13. Last month, Arizona announced its intention to file 20 criminal charges against Kalshi for allegedly offering betting products that violate state law. According to the court, 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.
The judge expressed concern that Arizona's pursuit of state action could violate the Supremacy Clause, leading to the issuance of a temporary restraining order that will remain in effect for two weeks. Additionally, there is a pending motion for a preliminary injunction that, if granted, would extend the temporary restraining order. The ruling states that defendants are temporarily restrained from enforcing Arizona's gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets.
CFTC Chair 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, also known as event contracts, are swaps subject to federal supervision, which 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 decision to grant the CFTC's motion came two days after denying Kalshi's own motion for a preliminary injunction against the state, which was argued on different grounds.