Federal judge blocks Arizona from bringing criminal charges against Kalshi

A federal judge has blocked the state of Arizona from bringing criminal charges against prediction market provider Kalshi, at least temporarily, in response to a motion from the Commodity Futures Trading Commission.

District Judge Michael Liburdi, in the District of Arizona, ruled Friday that Arizona cannot hold an arraignment of Kalshi as scheduled on Monday, April 13. Arizona announced last month it would file 20 criminal charges against Kalshi for offering what the state claimed were betting products in violation of Arizona law.

"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]," the judge ruled in the temporary restraining order, according to Paradigm senior regulatory counsel Stefan Schropp.

In a statement Friday, CFTC Chair Michael Selig said the regulator "appreciated" the judge's decision.

"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," he said.

The CFTC sued Arizona and two other states arguing that prediction markets, otherwise known as event contracts, are swaps subject to the federal agency's supervision, and that its role preempts state law.

It's a view that's seen largely mixed results in court; state courts have often sided with states, such as when a Nevada state court ruled that the Gaming Control Board could temporarily block Kalshi while a broader case moves forward.

Federal courts have had different results; the Third Circuit Court of Appeals ruled earlier this week that prediction markets are subject to CFTC rule, and it was up to the CFTC's discretion on if it wanted to block providers from offering sports-related products or not.

The Ninth Circuit Court of Appeals declined to weigh in on the aforementioned Nevada action, allowing that state court to block Kalshi, but it will hold a hearing on a consolidated case next week allowing various providers and other parties to argue.

Judge Liburdi of Arizona granted the CFTC's motion to block the Arizona state action against Kalshi two days after denying Kalshi's own motion for a preliminary injunction against the state.