In a significant ruling, a federal judge in Arizona has temporarily blocked the state from pursuing criminal charges against Kalshi, a prediction market provider. The decision, made in response to a motion by the Commodity Futures Trading Commission (CFTC), prevents Arizona from taking any enforcement actions under state law against Kalshi for the time being. District Judge Michael Liburdi made the ruling on Friday, stating that the CFTC has a strong case in arguing that Arizona's gambling laws are preempted by the Commodity Exchange Act. The judge's decision also noted that Arizona proceeding with state action could violate the Supremacy Clause, leading to a temporary restraining order for two weeks.
The CFTC had sued Arizona and two other states, arguing that prediction markets are subject to federal supervision and that state law is preempted. The regulator welcomed the judge's decision, with CFTC Chair Michael Selig stating that it sends a clear message against using state criminal law to intimidate companies that comply with federal law.
The case is part of a broader dispute over the regulation of prediction markets, with mixed results in court so far. While some state courts have sided with states, federal courts have had different outcomes, including a recent ruling by the Third Circuit Court of Appeals that prediction markets are subject to CFTC rule.