CFTC Gets Judge to Block Arizona’s Prediction Market Prosecution

Federal regulators have convinced a judge to prohibit Arizona from prosecuting predictions market Kalshi.

The U.S. District Court for the District Arizona on Friday (April 10) granted a temporary restraining order that prevents Arizona from pursuing criminal charges against contract markets that are governed by the Commodity Futures Trading Commission (CFTC).

The ruling came after the CFTC filed a complaint against Arizona seeking an injunction barring the state from its prosecutions.

“The CFTC appreciates the court’s careful consideration of these important legal questions and the court’s decision to preserve the status quo,” CFTC Chairman Michael S. Selig said in a news release.

“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.”

The ruling came days after the CFTC filed complaints against Arizona, Connecticut, and Illinois, seeking declaratory judgments that federal law grants the CFTC “exclusive authority” to regulate event contracts and seeking permanent injunctions blocking the states from enforcing preempted state laws against designated contract markets (DCMs).

Arizona Attorney General Kris Mayes announced in March that she filed criminal charges against Kalshi, alleging that the company violated state laws that prohibit operating an unlicensed wagering business and that ban betting on elections.

“Kalshi may brand itself as a ‘prediction market,’ but what it’s actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law,” Mayes said in a news release. “No company gets to decide for itself which laws to follow.”

Connecticut and Illinois, meanwhile, issued cease and desist letters to DCMs to prevent the listing of sports-related event contracts within their states.

In another ruling last week, a federal appeals court ruled for the first time that the CFTC has exclusive jurisdiction over sports-related event contracts.

The decision from the U.S. Court of Appeals for the Third Circuit came in a case in which Kalshi sued New Jersey after getting a cease and desist letter saying that sports-related event contracts violate state gambling laws.

Kalshi had argued that its event contracts can only be regulated by the CFTC. A lower court sided with the company and issued a preliminary injunction, leading New Jersey to appeal.

New Jersey Attorney General Jennifer Davenport told Reuters her office is evaluating its options after this latest ruling, arguing that the decision will allow “certain companies to offer sports gambling in our states without following the careful gaming rules that everyone else follows.”