Second Circuit Denies Kalshi, Coinbase Injunction Motion in New York and Connecticut
By Robert Linnehan in Industry
Published:
- A three-judge panel for the U.S. Second Circuit today denied an injunction motion for Kalshi and Coinbase
- The U.S. Court of Appeals for the Second Circuit today heard arguments from Kalshi, Coinbase, and the CFTC, plus counsel for New York and Connecticut
- New York and Connecticut now has the ability to enforce its state gaming laws against prediction market company offerings
A three-judge panel for the U.S. Court of Appeal for the Second Circuit today denied a motion for an injunction from Kalshi and Coinbase in New York and Connecticut, essentially paving the way for the states to enforce their gambling laws against the prediction market companies.
The three-judge panel today heard arguments from Kalshi, Coinbase, and the Commodity Futures Trading Commission (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.
States Can Enforce Gambling Laws
The injunction denial was handed down from the Second Circuit today hours after the panel heard arguments from the parties. The panel did not yet release its reasoning, but simply denied the injunction motion.
“Upon due consideration, it is hereby ORDERED that the motions are DENIED because Appellants have failed to make the required showing that an injunction pending appeal is warranted.
the order reads.
The decision leaves Kalshi and Coinbase open to state enforcement of gambling laws.
Kalshi and Coinbase filed for injunction in New York earlier this year. However, U.S. District Court for the Southern District of New York Judge Analisa Torres officially denied the motion in July.
Judge Torres disagreed with the operator’s assertion that the Commodity Exchange Act (CEA) preempts state gambling laws.
“The Court finds that New York gambling laws as applied to Kalshi’s sports event contracts are not preempted by the CEA and Kalshi has not, therefore, made a clear or substantial showing that it is likely to succeed on the merits,” Torres wrote in her decision.
Additionally, a motion for an injunction from Kalshi in Connecticut was summarily denied by District of Connecticut Judge Vernon D. Oliver in August. Judge Oliver carried a similar opinion as Judge Torres, noting that in his opinion sports event contract do not satisfy the statutory definition of a swap under the CEA.
“Kalshi’s sports-event contracts fail to satisfy this portion of the statutory definition of a swap because they do not depend on whether an underlying sporting event occurs, fails to occur, or occurs to a particular extent. Instead, Kalshi’s sports-event contracts depend on the event’s outcomes or discrete in-game occurrences. Treating those outcomes as separate ‘events’ would depart from the ordinary meaning of the term. Thus, Kalshi’s sports-event contracts do not fall within § 1a(47)(A)(ii),” Oliver wrote in his decision.
State Lawsuits Still Pending
Both New York and Connecticut have pending lawsuits against Kalshi. New York Gov. Kathy Hochul (D) and Attorney General Letitia James announced a lawsuit against the company in July, alleging the platform runs an illegal gambling operation in the Empire State.
New York filed its lawsuit one minute after midnight on Friday, July 31, the earliest it legally could file a suit against the company, after courts denied Kalshi’s request for an emergency injunction pending appeal.
In the state’s lawsuit, New York is seeking at least $36 billion from the prediction market operator, directing the respondent to pay a penalty of $100,000 for each offer or attempt to offer sports betting or online sports betting in the state without authorization. The suit requires the company to pay the fine, forfeit all gains from its gambling operations in the state, and pay restitution to users.
As a company, Kalshi has a total valuation of $22 billion.
Connecticut Attorney General William Tong, Gov. Ned Lamont (D), and Department of Consumer Protection Commission Bryan T. Cafferelli filed their lawsuit against Kalshi in Connecticut Superior Court in August, seeking a court injunction to block the prediction market operator’s sports event contracts.
“Sports event contracts are no different than sports betting and are not magically shielded by federal law from Connecticut’s commonsense consumer protection laws. These laws exist for a reason – to protect minors, to prevent problem gambling, to ensure your money is safe and your personal information is protected. None of that is happening now on Kalshi, and we’re suing to put a stop to it,” Attorney General Tong said in the state announcement.
Regulatory Writer and Editor
Robert Linnehan covers all regulatory developments in online gambling and sports betting. He specializes in U.S. sports betting news along with casino regulation news as one of the most trusted sources in the country.
