Encourage innovation! A U.S. judge bans Arizona’s regulation of prediction markets and suspends the prosecution of Kalshi

A U.S. federal district court has ruled to temporarily bar Arizona from pursuing a prediction market platform Kalshi under the state gambling law. The judge said the U.S. Commodity Futures Trading Commission has exclusive jurisdiction, and state governments may not go beyond that.

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

Judges assign legal priority to the federal government

In the ruling, U.S. district judge Michael Liburdi said that 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 platform meet the definition of Swaps under the Commodity Exchange Act. Under the statute, the CFTC has Exclusive Jurisdiction over products traded on designated contract markets. The judge said that federal law has priority in regulating such financial products, so Arizona’s attempt to govern the market using state-level gambling regulations exceeded enforcement authority. After the order was issued, the criminal arraignment hearing originally scheduled for Monday was declared canceled, showing that the federal court is inclined to protect a unified regulatory framework for national financial markets.

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

Arizona 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, while emphasizing that the state strictly prohibits unlicensed gambling business operations. However, Kalshi insists that its operating model is not traditional gambling; instead, it offers customers the buying and selling of contracts for event outcomes—“yes” or “no.” Kalshi insists that what occurs between customers is a risk swap, not a wager between players and a dealer as in traditional gambling; in nature, it is a financial product.

Different rulings in U.S. states

Arizona is the first state in the U.S. to take action against prediction market platforms, which has since triggered a ripple effect. In addition to Arizona, Kalshi is also facing legal pressure in Utah and Iowa. At present, 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 supportive attitude toward prediction markets, even with federal agencies bringing lawsuits against Connecticut, Arizona, and Illinois to challenge 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 is also an investor in the latter. Truth Social, the president’s social media platform, is preparing to roll out a cryptocurrency-based prediction market called Truth Predict.

Kalshi argues that if each state independently enforces its gambling laws, it will threaten the platform’s survival and damage the integrity and liquidity of contracts. Kalshi believes that Arizona’s criminal prosecution is intended to interfere with the existing civil litigation procedures. A spokesperson for the Arizona Attorney General’s Office, Taylor (Rich Taylor), does not agree with the judge’s order temporarily suspending the case against Kalshi, saying it will evaluate next steps.

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