Illinois Prediction Market Law Injunction Now In Effect, but State Appeals to Seventh Circuit

• An Illinois preliminary injunction has gone into effect in the state to block state gambling laws against prediction market operators
• Illinois federal court granted preliminary injunction motions to Kalshi, Coinbase in early October
• The state has appealed the decision to the Seventh Circuit

U.S. District Court for the Northern District of Illinois Judge Martha M. Pacold has implemented a preliminary injunction against Illinois officials from enforcing state gambling laws related to sports event contracts and the trading of swaps.

Pacold granted the temporary injunction motion to Kalshi and Coinbase in early October and implemented the order on Friday, Oct. 30. The injunction prohibits enforcing licensing requirement, associated fees, taxes, and related criminal provisions for contracts available through Designated Contract Markets and Futures Commission Merchants regulated by the Commodity Futures Trading Commission (CFTC).

However, the state and Attorney General Kwame Raoul immediately appealed the injunction to the U.S. Court of Appeals for the Seventh Circuit.

Injunction Goes Into Effect

Judge Pacold granted the motion on Friday, Oct. 2, creating an intra-circuit split with the U.S. District Court for the Eastern District of Wisconsin. The Wisconsin federal court denied a CFTC motion in July for a preliminary injunction in the Badger State.

Pacold’s ruling determined event contracts are “most likely” swaps under the CEA and the plaintiffs have demonstrated they will be “irreparably harmed” without a preliminary injunction.

“Many of the financial instruments at issue are likely swaps as defined by the Commodity Exchange Act—they just happen to be swaps that people find entertaining and fun. Under the Act and precedent interpreting it, some Illinois law is likely preempted. Plaintiffs are therefore likely to succeed—at least in part. Plaintiffs have also demonstrated that they will be irreparably harmed without an injunction, and that the other equitable factors favor issuing an injunction,” Pacold wrote.

The plaintiffs, Pacold noted, demonstrated that Kalshi is a designated contract market, that its sports event contracts are swaps, and that Illinois is likely attempting to “exercise control over Kalshi’s sale of those ‘swaps’.” Much of Illinois law also likely conflicts with the CEA and is likely preempted as well.

The ruling creates an intra-circuit split with the U.S. District Court for the Eastern District of Wisconsin. The court denied the CFTC’s motion for a preliminary injunction in Wisconsin, ruling that event contracts likely do not reach the definition of a swap and federal law does not preempt Wisconsin gaming laws.

The CFTC appealed the decision with the U.S. Court of Appeals for the Seventh Circuit.

Illinois Appeals Decision

Attorney General Raoul and Gov. J.B. Pritzker (D), plus several other state officials, submitted a notice of appeal to the U.S. Court of Appeals for the Seventh Circuit on the same day the injunction went into effect.

“A notice of appeal has been filed in each case in which this order was entered. In this appeal, Defendants request that the district court’s order granting a preliminary injunction be reversed and vacated, and any other appropriate relief,” the appeal reads.

The court of appeals will determine if an appeal is relevant or if the Illinois preliminary injunction will remain in place.