Encouraging innovation! A U.S. judge bars Arizona from regulating a prediction market and suspends the prosecution of Kalshi

A U.S. federal district court has ruled to temporarily bar the state of Arizona from prosecuting prediction market platform Kalshi under its gambling law. The judge said the Federal Commodity Futures Trading Commission has exclusive jurisdiction, and the state government cannot overstep.

Recently, a U.S. federal district court ruled on the legal dispute between prediction market platform Kalshi and the Arizona government. The court temporarily prohibited the state from enforcing the gambling-related regulations against the platform and simultaneously stayed the 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 Liburdi (Michael Liburdi) said that the Federal Commodity Futures Trading Commission (CFTC) has presented sufficient evidence to show that the Event Contracts—“event contracts”—offered by the prediction market fall under the definition of Swaps in the Commodity Exchange Act. Under the statute, the CFTC has Exclusive Jurisdiction over products traded on a designated contract market. The judge said that federal law takes priority in regulating such financial products, so Arizona’s attempt to regulate the market through state-level gambling regulations exceeds enforcement authority. After this order was issued, a criminal arraignment hearing originally scheduled for Monday was canceled, showing that the federal court is inclined 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 wagers involving political election results, university sports events, and players’ individual performance, emphasizing that the state strictly prohibits unlicensed gambling operations. However, Kalshi insists that its operating model is not traditional gambling; rather, it offers customers contracts to buy and sell “yes” or “no” positions based on event outcomes. Kalshi insists that what customers trade with each other is a risk swap, not a bet between players and a house in traditional gambling; in nature, it is a financial product.

Different rulings across the United States

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

The Trump family supports prediction markets

The Trump administration has shown a pro–prediction market stance, even with federal agencies filing lawsuits against Connecticut, Arizona, and Illinois to question interference by local governments in federal regulatory business, arguing that using state law to target compliant financial companies will set a dangerous precedent.

The development of prediction platforms is closely intertwined with political forces. President Trump’s eldest son is an adviser to Kalshi and Polymarket, and also an investor in the latter. Truth Social, the president’s social media platform, is planning 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 believes Arizona’s criminal prosecution is intended to interfere with the existing civil litigation processes. Rich Taylor, a spokesperson for the Arizona Attorney General’s Office, disagreed with the judge’s stay of the Kalshi ruling and said it would evaluate subsequent actions.

• This article is republished with authorization from: 《Chain News》
• Original title: 《Judge blocks Arizona from regulating prediction markets and temporarily suspends prosecution of Kalshi》
• Original author: DW