The lawsuit comes as federal appeals courts have left Connecticut, Nevada and New York free to enforce their gambling laws against sports event contracts, adding to a series of setbacks for Kalshi and the federal regulator backing its position, Ars Technica reported Thursday (Nov. 5).
Griffin filed the civil case in Arkansas state court against KalshiEX LLC and Kalshi Inc, according to the release. He alleged they accepted wagers on sporting and entertainment events without the licenses or oversight required of gambling operators and failed to pay applicable taxes.
Kalshi admitted customers as young as 18, while Arkansas requires users to be at least 21 to open electronic wagering accounts, the Ars Technica report said.
Griffin alleged violations of Arkansas’ Deceptive Trade Practices Act and seeks restitution, penalties, unpaid taxes and an injunction, according to the release.
“Arkansas law is concerned with substance, not semantics,” Griffin said in the release. He pointed to Kalshi’s deposit limits, self-exclusion tools and promotion of gambling addiction resources as evidence that the company recognizes risks familiar to gambling regulators.
Kalshi called the allegations baseless and said Congress created a single federal regulator so exchanges could operate under nationwide rules, according to the Ars Technica report.
The 2nd Circuit denied requests Tuesday (Nov. 3) from Kalshi and Coinbase to block state enforcement while their appeals proceed. The order covered Kalshi’s cases against New York and Connecticut officials and Coinbase’s separate Connecticut case. In the two-sentence order, the panel said the companies had “failed to make the required showing” to justify an injunction pending appeal.
A day later, the 9th Circuit declined to rehear its August decision allowing Nevada to enforce its gambling laws against Kalshi’s sports contracts. The August panel concluded that the sports contracts fell outside the federal definition of swaps, leaving Nevada’s gambling rules applicable. According to the court, no judge called for a vote on rehearing by the full court.
In September, the 6th Circuit cleared the way for Ohio and Tennessee to enforce their laws. It concluded that Kalshi had failed to show its sports contracts qualified as swaps and that, even if they did, federal law would allow the states to enforce their gambling laws.
The Commodity Futures Trading Commission said the Commodity Exchange Act gives it exclusive authority over swaps traded on federally registered exchanges. The dispute turns on whether contracts that pay out based on a game’s outcome fall within the federal definition of a swap and whether the statute displaces state gambling laws as applied to those contracts.
The CFTC sued Utah and nine other states and filed briefs in several appeals. Utah separately brought criminal charges against Kalshi and its founders under its gambling ban. A federal judge in Utah had already declined to block state enforcement, the Ars Technica report said.
The CFTC’s claim of sole authority has gained little traction in the recent rulings, according to the report. Its biggest win came in an April decision from the 3rd Circuit, which found that Kalshi’s sports contracts qualified as swaps and that the CFTC’s exclusive jurisdiction barred New Jersey from enforcing its gambling laws against those trades. New Jersey has asked the Supreme Court to review the ruling, with support from 39 other states and the District of Columbia.
While that petition is pending, the split leaves exchanges exposed to different enforcement outcomes across the country. Arkansas also shows how the stakes extend beyond whether a platform can keep offering sports contracts. By suing under its consumer protection statute and seeking money as well as an injunction, the state is pursuing liability for transactions Kalshi has already accepted.
