CFTC Sues Arkansas to Block State Gambling Law Enforcement Against Event Contracts

• The CFTC recently filed a lawsuit against Arkansas to block the state from enforcing its gambling laws
• The litigation aims to prohibit the state from imposing its gambling laws against prediction market compaies
• Arkansas Attorney General Tim Griffin sued prediction market company Kalshi last week

The Commodity Futures Trading Commission filed a lawsuit against the state of Arkansas and Attorney General Tim Griffin to prohibit the enforcement of state gambling laws against prediction market offerings.

Counsel for the Commodity Futures Trading Commission (CFTC) filed the suit in U.S. District Court for the Eastern District of Arkansas Central Division. The CFTC is seeking a preliminary and permanent injunction that prohibits Arkansas from enforcing its gambling laws against CFTC-regulated entitites.

Arkansas is the 11th state the CFTC has sued to protect what the commission believes is federal sovereign interests.

Protecting Event Contracts

The CFTC lawsuit comes just one week after Griffin filed a lawsuit against prediction market company Kalshi for alleged illegal gambling.

Griffin filed the lawsuit in the Circuit Court of Independence County, Arkansas Civil Division, noting the state permits casino gaming and sports betting only within strict limits. Kalshi, the lawsuit states, chooses to ignore the state’s regulations and operate without a license, comply with rules, and pay the taxes required of lawful gambling operators.

The CFTC’s lawsuit aims to protect event contracts being offered in Arkansas by federally regulated DCMs. The CFTC believes event contracts are defined as “swaps” under the Commodity Exchange Act, and can only be regulated by the CFTC.

“As prediction markets continue to prove their value in being useful for risk management and providing the public with valuable information about the future, Arkansas seeks to shut down event contracts ranging from sports and politics to other important world events,” Chairman Michael S. Selig said in a press release. “The CFTC will continue to defend its sole jurisdiction over these federally regulated markets as granted by Congress under the Commodity Exchange Act, and the Commission will not let state interference thwart its regulatory efforts and destroy federally regulated markets.”

Unpaid Taxes and Civil Penalties

The Arkansas lawsuit requests an injunction be put in place to prohibit Kalshi from offering its alleged illegal gambling services in the state, a civil penalty of $10,000 per each violation, and the payment of unpaid taxes for all applicable years owed to Arkansas.

The lawsuit claims Kalshi is in violation of the Arkansas Deceptive Trade Practices Act, which prohibits deceptive practices, including “”[k|nowingly making a false representation as to the characteristics, ingredients, uses, benefits, alterations, source, sponsorship, approval, or certification of goods or services or as to whether goods are original or new or of a particular standard, quality, grade, style, or model.”

It also broadly prohibits false or deceptive acts in business, commerce, or trade.