In a recent ruling, a federal judge has temporarily barred the state of Arizona from filing criminal charges against Kalshi, a provider of prediction markets, following a motion submitted by the Commodity Futures Trading Commission. The decision, made by District Judge Michael Liburdi of the District of Arizona, prevents Arizona from proceeding with an arraignment of Kalshi that was scheduled for April 13. Last month, Arizona announced plans to file 20 criminal charges against Kalshi, alleging that the company's offerings violated state law. However, the court has determined 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.
As a result, the judge has granted a temporary restraining order, effective for two weeks, citing the potential violation of the Supremacy Clause if Arizona were to proceed with state action. The order restrains Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets.
This development comes as the CFTC has sued Arizona and other states, arguing that prediction markets fall under its supervision as swaps, and that federal law takes precedence over state law. The CFTC Chair, Michael Selig, has expressed appreciation for the judge's decision, stating that Arizona's attempt to use state criminal law against companies complying with federal law sets a dangerous precedent. The case is part of a broader debate, with mixed results in court, as state courts have often sided with states, while federal courts have yielded 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 ruling comes after denying Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.