New York District Judge Denies Novig’s Motion For Preliminary Injunction

• U.S. District Court Southern District of New York has denied Novig’s motion for a preliminary injunction
• Judge Colleen McMahon concluded Novig’s contracts are not “swaps” within the meaning of the Commodity Exchange Act
• Novig has already appealed the decision

U.S. District Court Southern District of New York Judge Colleen McMahon denied Novig’s motion for a preliminary injunction, concluding that the prediction market company’s contracts are not “swaps” within the meaning of the Commodity Exchange Act.

Novig filed a lawsuit in August against New York Attorney General Letitia James and members of the New York State Gaming Commission one day after launching its prediction market services in the Empire State.

However, Judge McMahon reached the same conclusion as that of the Third and Sixth Circuit courts, noting that the Southern District of New York is “not required to disregard common sense – Novig’s sports event contracts are sports betting.”

State Laws Not Preempted by CEA

According to Judge McMahon, New York’s regulation of sports betting on Novig’s DCM is not included in the preemptive “sweep of the Commodity Exchange Act (CEA).” States may not directly regulate the operation or licensing of DCMs, which is the proper jurisdiction of the Commodity Futures Trading Commission, but the CEA does not prevent the application of state gambling regulations, she said.

“Congress drafted the CEA to regulate financial activity, like hedging against com futures, not consumers betting on Thursday Night Football. The CEA’s text must be read accordingly,” McMahon wrote.

It is inappropriate, she said, to give the CFTC’s position that Novig’s contracts are swaps under the CEA, but traditional sports bets are not. Both sports event contracts and sports bets are outcome dependent and have financial consequences for the contracting parties.

“Novig makes its money, not off the sucker who places a losing bet on a sports event, but by charging two suckers a fee for the privilege of betting against each other on its platform. Again, not a difference that makes a difference,” McMahon wrote in a footnote in her decision.

Novig Appeals Decision

Novig filed an appeal of Judge McMahon’s decision on the same day. The prediction market company filed its appeal with the U.S. Court of Appeals for the Second Circuit.

A three-judge panel for the U.S. Court of Appeal for the Second Circuit earlier this month denied a motion for an injunction from Kalshi and Coinbase in New York and Connecticut. The three-judge panel heard arguments from Kalshi, Coinbase, and the CFTC and their motion for an injunction in the states. Counsel for New York and Connecticut argued against the motion.

The appeals from Kalshi, Coinbase, and the CFTC were combined into one motion after district courts in New York and Connecticut previously denied motions for injunctions from both Kalshi and Coinbase.