Kalshi, a provider of prediction markets, has been temporarily shielded from criminal charges by the State of Arizona, following an intervention by District Judge Michael Liburdi in Arizona. The decision came after a motion was filed by the Commodity Futures Trading Commission (CFTC). Judge Liburdi’s ruling on Friday prohibited Arizona from proceeding with Kalshi’s arraignment, initially set for Monday, April 13.
Arizona had previously announced plans to levy 20 criminal charges against Kalshi, accusing it of offering illegal betting products under state law. However, in his temporary restraining order, Judge Liburdi stated that “Defendants are temporarily restrained and enjoined from enforcing AZ’s gambling laws in any criminal or civil enforcement actions to any contracts listed on CFTC-regulated [designated contract markets],” as noted by Stefan Schropp, senior regulatory counsel at Paradigm.
In response, CFTC Chair Michael Seling expressed gratitude towards the judge’s decision. “Arizona’s use of state criminal law against companies adhering to federal regulations sets a perilous precedent,” he remarked. “The court’s order today underscores that intimidation tactics are unacceptable methods for circumventing federal laws.” The CFTC has taken legal action against Arizona and two other states, asserting that prediction markets, also known as event contracts, qualify as swaps under its jurisdiction, thereby superseding state regulations.
Judicial opinions on this matter have varied. State courts typically support the states, evident in a Nevada court ruling allowing the Gaming Control Board to temporarily halt Kalshi’s operations while broader legal proceedings continue. In contrast, federal rulings have been inconsistent; earlier this week, the Third Circuit Court of Appeals confirmed that prediction markets fall under CFTC regulations and that it is within the agency’s discretion to permit or restrict providers from offering sports-related products.
The Ninth Circuit Court of Appeals refrained from intervening in Nevada’s actions, permitting the state court’s decision but scheduled a hearing next week for various stakeholders to present their cases. This development followed Judge Liburdi’s approval of the CFTC’s motion two days after denying Kalshi’s request for a preliminary injunction against Arizona.