Encouraging innovation! A U.S. judge bans Arizona’s regulators from prediction markets and suspends the prosecution of Kalshi

A U.S. federal district court has temporarily barred the state of 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, so the state government may not overstep.

In a recent ruling, a U.S. federal district court decided a legal dispute between the prediction market platform Kalshi and the Arizona state government, temporarily blocking the state from enforcing gambling-related regulations against the platform and simultaneously pausing the related criminal proceedings. The ruling initially clarifies the priority order between federal and state governments regarding regulatory authority over financial derivative products.

Judges assign primary legal jurisdiction to the federal government

In the ruling, U.S. District Judge Michael Liburdi said the U.S. Commodity Futures Trading Commission (CFTC) has presented sufficient evidence to show that the “Event Contracts” provided 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 designated contract markets. The judge said federal law has priority in regulating such financial products, and therefore Arizona’s attempt to regulate the market under state-level gambling regulations exceeds its enforcement authority. After the order was issued, the criminal arraignment hearing originally scheduled for Monday was canceled, showing that the federal courts are inclined to protect a unified regulatory framework for national financial markets.

Kalshi insists event contracts are a new type of financial instrument

Arizona’s prosecuting authorities previously brought 20 misdemeanor charges against Kalshi, alleging that the platform illegally accepted bets involving political election outcomes, college athletic events, and players’ individual performance, while emphasizing that the state strictly prohibits unlicensed gambling operations. However, Kalshi insists its operating model is not traditional gambling, but rather offers clients “yes” or “no” contract trading based on event outcomes. Kalshi insists that what clients trade with each other is a risk swap, not a wager between players and a bookmaker in traditional gambling; in nature, it is a financial product.

Different rulings across the U.S.

Arizona was the first state in the U.S. to take action against prediction market platforms, triggering a ripple effect. Besides Arizona, Kalshi is also facing legal pressure in Utah and Iowa. For now, court rulings vary by jurisdiction: 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, even bringing lawsuits through federal agencies against Connecticut, Arizona, and Illinois, challenging local governments for interfering 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 intertwined with political forces. President Trump’s eldest son is an adviser to Kalshi and Polymarket, and also an investor in the latter. The Trump-owned social media platform Truth Social is reportedly preparing to launch a crypto-based prediction market called Truth Predict.

Kalshi argues that if states enforce their gambling laws independently, it would threaten the platform’s survival and damage the integrity and liquidity of contracts. Kalshi believes 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, saying it will evaluate next steps.

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