In a temporary reprieve for prediction market provider Kalshi, a federal judge in Arizona has halted the state's plans to bring criminal charges, at least for the time being, in response to a request from the Commodity Futures Trading Commission. District Judge Michael Liburdi ruled that Arizona cannot proceed with an arraignment of Kalshi, which was scheduled for Monday, April 13, after the state announced it would file 20 criminal charges against the company for allegedly violating Arizona law with its betting products. The judge's ruling stated that the Commodity Futures Trading Commission has a strong likelihood of succeeding in its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act, potentially violating the Supremacy Clause if the state proceeds with its action.
As a result, Judge Liburdi granted a temporary restraining order for two weeks, noting a pending motion for a preliminary injunction that could extend this period. The order temporarily restrains Arizona from enforcing its gambling laws in any criminal or civil actions related to contracts listed on Commodity Futures Trading Commission-regulated markets.
The Commodity Futures Trading Commission chairman, 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 and that the court's order sends a clear message against using intimidation to circumvent federal law. The Commodity Futures Trading Commission's lawsuit against Arizona and two other states argues that prediction markets, or event contracts, are swaps subject to federal supervision, preempting state law.
The issue has seen mixed results in courts, with state courts often siding with states and federal courts having different outcomes. Recently, the Third Circuit Court of Appeals ruled that prediction markets are subject to Commodity Futures Trading Commission rules, and it is up to the agency's discretion to block providers from offering sports-related products. The Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi but will hold a hearing on a consolidated case.
Judge Liburdi's decision to block Arizona's action against Kalshi came two days after he denied Kalshi's motion for a preliminary injunction against the state, with the parties arguing on different grounds.