What to know:
- A federal judge blocks Arizona action against Kalshi, backing CFTC oversight claims.
- Court signals Kalshi contracts may qualify as swaps under federal law, not gambling.
- Nevada extends Kalshi ban as US states clash with federal stance on prediction markets.
A federal judge in Arizona has temporarily blocked state officials from enforcing gambling laws against Kalshi. The decision supports federal regulators in an ongoing dispute over how event-based trading products should be classified under existing law frameworks.
The order issued on Friday by Judge Michael Liburdi of the US District Court for the District of Arizona. He approved a request from the Commodity Futures Trading Commission and the federal government. The ruling halts any state-level enforcement tied to contracts listed on regulated markets.
Also Read: Kalshi Prediction Markets Regulation: DOJ, CFTC Move to Block Arizona’s Case
Court Weighs Federal Oversight of Kalshi Contracts
The issue arises because of the event contracts offered by Kalshi. It remains undecided whether such products would come under federal derivative regulation or gambling laws of the state.
The officials from Arizona had attempted to enforce state laws last month due to some activities involving gambling.
However, federal regulators stepped in last week and appealed for the court to halt the efforts of the state of Arizona. This is based on the premise that the contracts were to be regulated only federally and not by the state.
The court’s ruling suggests that the likelihood of success for the CFTC’s position is high. The contracts at issue can be construed as swaps, which fall under the provisions of the Commodity Exchange Act, granting the agency exclusive authority over such swaps traded on designated markets.
As a result, Arizona government representatives can no longer file any civil or criminal cases associated with these contracts. This provision pertains solely to assets traded on federally regulated marketplaces. In addition, the temporary court order will expire on April 24.
Prediction Markets Face Regulatory Split
Now, the judge will make a final decision regarding whether he should provide a more permanent preliminary injunction. This decision may influence other legal cases of the same nature. It might also determine how federal and state agencies coordinate with each other on this matter.
This case falls into the scope of discussion of prediction market regulation in the US. Specifically, legislators in Utah introduced a law prohibiting certain prediction market services such as Polymarket. According to the bill, the concerned contracts constitute a type of online betting.
Meanwhile, in Nevada, a separate court ruling has already taken a different direction. The judge granted an extension for a previous injunction against Kalshi. The court said that the contracts closely resemble traditional sports betting activity.
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