In a significant development, a federal judge has intervened to stop Arizona from pressing criminal charges against Kalshi, a prediction market provider, at least for the moment. This move 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 the scheduled arraignment of Kalshi on Monday, April 13. Last month, Arizona had announced plans to file 20 criminal charges against Kalshi, alleging that the company's offerings violated state law. The judge's decision was based on the likelihood of the CFTC succeeding in its claim that Arizona's gambling laws are preempted by federal legislation, specifically the Commodity Exchange Act.
The ruling also highlighted the potential violation of the Supremacy Clause if Arizona were to proceed with its state action. As a result, a temporary restraining order has been granted for two weeks, with the possibility of extension through a preliminary injunction.
The order specifically restrains Arizona from enforcing its gambling laws against contracts listed on CFTC-regulated markets. CFTC Chair Michael Selig welcomed the judge's decision, emphasizing that using state criminal law against companies complying with federal law sets a dangerous precedent.
The CFTC has been arguing that prediction markets, or event contracts, fall under its supervision as swaps, thereby preempting state law. This stance has yielded mixed results in court, with state courts often siding with states, while federal courts have shown varying 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 in Arizona comes after he denied Kalshi's motion for a preliminary injunction against the state, albeit on different grounds.