Arizona Ordered to Temporarily Halt Pursuit of Criminal Charges Against Kalshi

• The United States District Court for the District of Arizona granted a temporary restraining order to halt Arizona’s pursuit of criminal charges against Kalshi
• The temporary restraining order will last for at least 14 days
• The Commodity Futures Trading Commission filed lawsuits against Arizona, Connecticut, and Illinois regarding prediction markets

A United States District Court for the District of Arizona judge last week granted a temporary restraining order to halt Arizona’s pursuit of criminal charges against Kalshi.

The order stems from three filed lawsuits by the Commodity Futures Trading Commission (CFTC) challenging the actions of Arizona, Connecticut, and Illinois against prediction markets, namely state actions against sports event contracts.

The temporary restraining order will run for at least 14 days and bars Arizona from enforcing its gambling laws in any criminal or civil actions against any contracts listed on CFTC regulated designated contract markets (DCMs).

CFTC Chair Lauds Decision

CFTC Chairman Michael S. Selig noted the commission “appreciates” the court’s decision to “preserve the status quo.”

“The CFTC appreciates the court’s careful consideration of these important legal questions and the court’s decision to preserve the status quo,” Selig said in a press 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 CFTC filed lawsuits against each of Arizona, Illinois, and Connecticut regarding their actions to try and regulate prediction markets within their borders. 

In its filed lawsuit in Illinois, CFTC counsel claim the state “misapprehend both the nature of these contracts and the federal regulatory framework.”

“Event contracts, including sports-related event contracts that are listed on DCMs, are covered by the CEA, and the CEA prohibits States from invading the CFTC’s exclusive jurisdiction over event contract transactions offered by and executed on federally regulated DCMs. By prohibiting these DCMs from operating in Illinois without an Illinois license or by conditioning their operation on compliance with Illinois laws and regulations, Defendants directly interfere with Plaintiffs’ authority pursuant to the federal scheme imposed by Congress through the CEA.”

The CFTC requested in its lawsuit that the courts should “put an end to the ongoing efforts by Defendants to undermine application of federal law” when it comes to regulating the prediction markets.

CFTC Issues Prediction Market Advisory

The CFTC recently issued an advisory regarding the listing for trading event contracts, underscoring the obligation for designated contract markets to only trade event contracts that are not readily susceptible to manipulation.

According to the Commodity Federal Trading Commission Division of Market Oversight (DMO), the majority of sports event contracts offered by designated contract markets (DCM) where the settlement depends on the performance of multiple participants over an extended period of play have been consistent with the core obligation to avoid potential manipulation.

However, the DMO also reported that sports event contracts based on the outcomes of a “single individual or a small group of individuals” may be subject to heightened manipulation or price distortion risks.

The DMO issued advisory reminds DCMs they have self-regulatory obligations for the contract markets they operate.