Judge Blocks Arizona From Regulating Kalshi Prediction Markets

• Federal judge temporarily prohibits Arizona from enforcing gaming laws against Kalshi
• Says Commodities Exchange Act (CEA) grants CFTC regulatory power over swaps
• CTFC rails against Arizona attempts to “weaponize” state law against federal law with Kalshi case

Kalshi notched another legal victory on April 10, when a US district court judge in Arizona temporarily prohibited the state from applying its gaming laws against the prediction market operator.

US District Judge Michael Liburdi ruled that the Commodities Futures Trading Commission (CFTC), which is the federal regulator responsible for overseeing prediction markets, adequately displayed that event contracts, such as those offered by Kalshi, fall under the purview of the Commodities Exchange Act’s (CEA) definition of swaps.

The implication there is that if the case advances, the CFTC would likely show a court that it, not the state of Arizona, has regulatory authority over event contracts.

Arizona’s decision to weaponize state criminal law against ⁠companies that comply with federal law sets a dangerous precedent, and the ​court’s order today sends a clear message that intimidation is not an acceptable tactic ​to circumvent federal law,” said CFTC Chairman Michael Selig in a statement.

In recent legal retort against some states, the CFTC has argued that the CEA grants it the authority to regulate designated contract markets (DCMs), of which Kalshi is one, and that states’ efforts to shutter federally regulated DCM intrudes upon the power granted to the CFTC by Congress.

Arizona Case Is First of its Kind

Last month, Arizona broke new ground in states’ battles with prediction market by filing a 20-count criminal complaint against Kalshi, marking the first time a state levied criminal charges against a yes/no exchange.

“The Act grants the CFTC ‘exclusive jurisdiction’ over the regulation of ‘swaps,” that trade on DCMs, according to the order.

Like other states, Arizona was arguing that federal law doesn’t remove states’ “traditional power” to oversee sports wagering. In cases against prediction market operators, states frequently note that Congress and the Supreme Court have upheld that standard.

Kalshi Notching Some Legal Wins

While Kalshi and the prediction markets industry at large have a long way to go in its myriad legal battles, the company has recently won some favorable rulings.

Prior to the Arizona decision, the Third Circuit Court ruled that states can’t bar prediction market operators from offering sports derivatives, dealing a blow to New Jersey’s hopes of regulating the industry.

That case is potentially pivotal because it could provide precedent for similar case soon to be heard by the US Court of Appeals for the Ninth Circuit. In that legal action, the state of Nevada is arguing sports event contracts are no different than sports bets.

It’s a consolidated case involving Crypto.com, Kalshi and Robinhood Markets. Oral arguments in the Ninth Circuit case are scheduled to start on Thursday.