Encourage innovation! U.S. judges ban Arizona state regulation of prediction markets, and halt the prosecution of Kalshi

A U.S. federal district court has temporarily barred the state of Arizona from suing the prediction market platform Kalshi under the state’s gambling law. The judge reasoned that the federal Commodity Futures Trading Commission has exclusive jurisdiction, and the state government may not go beyond that authority.

Recently, a U.S. federal district court ruled in a legal dispute between the prediction market platform Kalshi and the state government of Arizona. The court temporarily blocked the state from enforcing gaming-related regulations against the platform, and simultaneously stayed related criminal proceedings. This ruling initially clarified the priority order between the federal government and state governments regarding regulatory authority over financial derivatives.

A judge assigns primary legal jurisdiction to the federal government

In the ruling, U.S. district judge Michael Liburdi said the Commodity Futures Trading Commission (CFTC) has presented sufficient evidence to show that the Event Contracts provided by the prediction market meet the definition of Swaps under the Commodity Exchange Act. Under this regulation, the CFTC has Exclusive Jurisdiction over products traded on a designated contract market. The judge said federal law has priority in regulating this type of financial product, so Arizona’s attempt to regulate the market through state gambling regulations exceeded its enforcement authority. After this order was issued, the criminal bail hearing originally scheduled for Monday was declared canceled, showing that federal courts are inclined to protect a unified regulatory framework for national financial markets.

Kalashi insists that event contracts are a new kind 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 individual players’ performances—emphasizing that the state strictly prohibits unlicensed gambling operations. However, Kalshi argues that its operating model is not traditional gambling; instead, it offers customers contracts to buy or sell based on whether an event outcome is “yes” or “no.” Kalshi argues that what customers trade with one another is a risk swap, not a bet between players and a dealer (or bookmaker) as in traditional gambling, and that its nature is 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, which then triggered a chain reaction. In addition to Arizona, Kalshi is also facing legal pressure in Utah and Iowa. For now, rulings vary from court to court. Nevada and Massachusetts support the state governments’ 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, even with federal agencies bringing lawsuits against Connecticut, Arizona, and Illinois to challenge local governments’ interference with federal regulatory activities. It argues that using state law to go after compliant financial companies will set a dangerous precedent.

The development of prediction platforms is tightly intertwined with political forces. The eldest son of President Trump is an advisor to Kalshi and Polymarket, and also an investor in the latter. Trump’s social media platform Truth Social is preparing to launch a crypto-based prediction market called Truth Predict.

Kalshi argues that if each state enforces gambling laws on its own, it will threaten the platform’s survival, harm the integrity of contracts, and reduce liquidity. Kalshi says 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 ruling against Kalshi, saying it will evaluate next steps.

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