In a recent ruling, a federal judge in Arizona has halted the state's attempt to bring criminal charges against Kalshi, a prediction market provider, in response to a motion filed by the Commodity Futures Trading Commission. The decision, made by District Judge Michael Liburdi, prevents Arizona from proceeding with an arraignment of Kalshi that was scheduled for Monday, April 13. This move comes after Arizona announced plans to file 20 criminal charges against Kalshi for allegedly offering betting products that violate state law.
The judge's ruling states that the Commodity Futures Trading Commission has demonstrated a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. As a result, Arizona's pursuit of state action may infringe upon the Supremacy Clause, leading the judge to grant a temporary restraining order for a period of two weeks. Additionally, a pending motion for a preliminary injunction may extend this temporary order. The Commodity Futures Trading Commission Chair, Michael Selig, expressed appreciation for the judge's decision, emphasizing that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent.
The regulator's lawsuit against Arizona and two other states argues that prediction markets, also known as event contracts, fall under the agency's supervision as swaps, thereby preempting state law. This viewpoint has yielded mixed results in court, with state courts often siding with states and federal courts producing varying outcomes.
The Ninth Circuit Court of Appeals has declined to intervene in a similar case in Nevada, allowing the state court to block Kalshi, but a hearing on a consolidated case is scheduled for the following week.