In a recent ruling, a federal judge has barred Arizona from pursuing 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, stating that Arizona cannot proceed with the scheduled arraignment of Kalshi. The state had announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate Arizona law.
The judge's ruling indicates that the CFTC has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. Proceeding with state action could potentially violate the Supremacy Clause, leading the judge to grant a temporary restraining order for two weeks. A pending motion for a preliminary injunction may extend this order.
The CFTC has expressed appreciation for the judge's decision, with Chair Michael Selig stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent. The regulator argues that prediction markets, or event contracts, are swaps subject to federal supervision, preempting state law. This view has seen mixed results in court, with state courts often siding with states and federal courts yielding different outcomes. The Ninth Circuit Court of Appeals will hold a hearing on a consolidated case next week, allowing providers and other parties to present their arguments.