In a recent ruling, a federal judge has halted Arizona's attempt to bring criminal charges against Kalshi, a prediction market provider, at least for the time being. This decision comes in response to a motion filed by the Commodity Futures Trading Commission. District Judge Michael Liburdi of the District of Arizona made the ruling on Friday, stating that Arizona cannot proceed with an arraignment of Kalshi as planned.
The state had previously announced its intention to file 20 criminal charges against Kalshi, alleging that the company's offerings violate Arizona law. However, Judge Liburdi found that the CFTC has a strong case in claiming that Arizona's gambling laws are preempted by the Commodity Exchange Act. The judge granted a temporary restraining order, effective for two weeks, citing the potential violation of the Supremacy Clause if Arizona were to proceed with its state action. A pending motion for a preliminary injunction may extend this order.
The 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, or event contracts, fall under its supervision as swaps, and thus are subject to federal law.
This viewpoint 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 regulation, 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.