Encourage innovation! U.S. judges ban Arizona from regulating prediction markets, pausing the prosecution of Kalshi

A federal district court in the United States temporarily barred Arizona from prosecuting the prediction market platform Kalshi under its gambling law. The judge said the U.S. Commodity Futures Trading Commission has exclusive jurisdiction, and the state government may not go beyond that.

A federal district court recently issued a ruling in the legal dispute between the prediction market platform Kalshi and the Arizona state government, temporarily prohibiting the state from enforcing gambling-related regulations against the platform while simultaneously halting the related criminal proceedings. The ruling initially clarified the priority order of regulatory authority between the federal government and state governments over financial derivatives.

The judge assigns primary legal jurisdiction to the federal government

In the ruling, U.S. District Judge Michael Liburdi said that the Commodity Futures Trading Commission (CFTC) has presented sufficient evidence to show that the Event Contracts “event contracts” offered by the prediction market fall within the definition of Swaps under the Commodity Exchange Act. Under the statute, the CFTC has Exclusive Jurisdiction over products traded on a designated contract market. The judge said federal law takes priority in regulating such financial products, and therefore Arizona’s attempt to regulate the market through state-level gambling regulations exceeded enforcement authority. After the order was issued, the criminal arraignment hearing scheduled for Monday was declared canceled, indicating that the federal courts tend to protect a unified regulatory framework for national financial markets.

Kalashi insists event contracts are a new type of financial instrument

Arizona’s prosecutors previously brought 20 misdemeanor charges against Kalshi, alleging that the platform illegally accepted bets involving political election results, college sports events, and players’ individual performance, emphasizing that the state strictly prohibits unlicensed gambling businesses. However, Kalshi insists its operating model is not traditional gambling, but rather offers contracts for customers to buy and sell “yes” or “no” outcomes tied to events. Kalshi maintains that customers are exchanging risk with each other, not engaging in the classic gambling dynamic between players and the house; in nature, it constitutes a financial product.

Different rulings across U.S. states

Arizona was the first state in the U.S. to take action against a prediction market platform, triggering a ripple effect. In addition to Arizona, Kalshi is also facing legal pressure in Utah and Iowa. Currently, rulings in various places differ: Nevada and Massachusetts support the state government’s ban, while New Jersey and Tennessee have issued decisions favorable to the platform.

The Trump family supports prediction markets

The Trump administration has shown support for prediction markets, and even through federal agencies it has filed lawsuits against Connecticut, Arizona, and Illinois, questioning whether local governments are interfering with federal regulatory activities. It argues that using state laws to go after compliant financial companies will set a dangerous precedent.

Prediction platforms are tightly intertwined with political forces. The president’s eldest son serves as an adviser to Kalshi and Polymarket, and is also an investor in the latter. Truth Social, the president’s social media platform under his brand, is preparing to launch a crypto-based prediction market called Truth Predict.

Kalshi argues that if each state enforces gambling laws independently, it will threaten the platform’s survival and damage the integrity and liquidity of contracts. Kalshi says that Arizona’s criminal prosecution is intended to interfere with existing civil litigation procedures. A spokesperson for the Arizona Attorney General’s Office, Rich Taylor, disagreed with the judge’s decision to pause the case against Kalshi and said it will assess next steps.

• This article is reprinted with permission from: 《Chain News》
• Original title: 《Judge bars Arizona from regulating prediction markets, pauses prosecution of Kalshi》
• Original author: DW