Encouraging innovation! U.S. judges ban Arizona from regulating prediction markets, and pause the prosecution against Kalshi

A U.S. federal district court ruling has temporarily barred 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 may not overstep.

Recently, a U.S. federal district court issued a decision in a legal dispute between prediction market platform Kalshi and the Arizona government, temporarily preventing the state from enforcing the gambling-related regulations it had targeted at the platform, while also pausing the related criminal proceedings. The ruling initially clarifies 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 the U.S. Commodity Futures Trading Commission (CFTC) has presented sufficient evidence to show that the Event Contracts—“event contracts”—offered by the prediction market meet the definition of Swaps under the Commodity Exchange Act. Under the statute, the CFTC has Exclusive Jurisdiction over products traded on specified contract markets. The judge said federal law has priority in regulating such financial products, so Arizona’s attempt to govern the market through state-level gambling regulations exceeds its enforcement authority. After this order was issued, the criminal arraignment hearing scheduled for Monday was canceled, indicating that the federal court is inclined to protect a unified regulatory framework for the national financial markets.

Kalashi insists that event contracts are a new type of financial instrument

Arizona prosecutors previously brought 20 misdemeanor charges against Kalshi, alleging the platform illegally accepted bets involving political election results, college sports events, and individual player performance. They emphasized that the state strictly prohibits unlicensed gambling businesses. However, Kalshi insists that its operating model is not traditional gambling, but instead involves contracts that let customers trade “yes” or “no” positions on event outcomes. Kalshi argues that what customers trade with one another is a risk swap, not a wager between players and a house in traditional gambling; in nature, it is a financial product.

Different rulings across U.S. states

Arizona was the first state in the U.S. to take action against prediction market platform operators, triggering a ripple effect. In addition to Arizona, Kalshi is also facing legal pressure in Utah and Iowa. Meanwhile, court rulings in different places have varied. 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 an attitude of support for prediction markets, even bringing lawsuits through federal agencies against Connecticut, Arizona, and Illinois—questioning whether local governments interfere with federal regulatory activities and arguing that using state law to target compliant financial companies would set a dangerous precedent.

The development of prediction platforms is closely entangled with political forces. President Trump’s eldest son is an adviser to Kalshi and Polymarket, and he is 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 states enforce gambling laws on their own, it will threaten the platform’s survival and damage the integrity and liquidity of its contracts. Kalshi says Arizona’s criminal prosecution is meant to interfere with existing civil litigation procedures. A spokesperson for the Arizona Attorney General’s Office, Taylor (Rich Taylor), disagreed with the judge’s suspension of the ruling against Kalshi and said it will evaluate further actions.

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