In a recent ruling, a US federal judge has intervened to stop the state of Arizona from pressing criminal charges against Kalshi, a prediction market provider, at least for the short term. 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 an arraignment of Kalshi, previously scheduled for April 13, cannot proceed as planned.
Last month, Arizona announced its intention to file 20 criminal charges against Kalshi, alleging that the company's offerings violate state law. The judge's decision was based on the CFTC's argument that Arizona's actions may be preempted by federal law, specifically the Commodity Exchange Act.
Granting a temporary restraining order, the judge noted that allowing Arizona to proceed could potentially violate the Supremacy Clause. The order is in effect for two weeks, with a pending motion for a preliminary injunction that could extend this period. The CFTC has welcomed the decision, with Chair Michael Selig stating that Arizona's use of state criminal law against federally compliant companies sets a dangerous precedent. The CFTC has been arguing that prediction markets fall under its supervision as swaps, a view that has seen mixed results in the courts.
While some state courts have sided with the states, federal courts have had varying outcomes, with the Third Circuit Court of Appeals recently ruling that prediction markets are subject to CFTC regulation.