Kalshi says it is a financial market, not a gambling operation, and should answer only to the Federal Commodity Futures Trading Commission, not the state of Arizona.
PHOENIX (AP) – A federal judge on Friday temporarily stopped Arizona from enforcing its gambling laws against prediction market operators and put the brakes on a the case of criminal betting that the state has raised against Kalshi.
U.S. District Judge Michael Liburdi’s ruling means Kalshi’s arraignment hearing on Monday has been canceled. state prosecutors they claim Kalshi is running an illegal gambling operation. The order was issued in a lawsuit filed by the Trump administration.
Liburdi said he would explain the reason for the decision in an order, which was expected to be issued Friday evening.
The Federal Commodity Futures Trading Commission had sued Arizona in response to cease-and-desist letters sent to Kalshi by state gambling regulators and criminal charges filed against the prediction market operator. The commission argued that Arizona is interfering with its exclusive federal power to regulate national exchange markets.
Liburdi had previously denied Kalshi tried to stop prosecutors from moving forward with the case and rejected a request by the company for a ruling saying federal law trumps Arizona gambling laws. Liburdi said it was too early for him to decide on the matter.
State prosecutors have charged Kalshi with 20 misdemeanor counts of bookmaking for allegedly accepting bets on political outcomes, college sports and individual player performance.
Arizona, the first state to file criminal charges against Kalshi, prohibits the operation of an unlicensed betting and election betting business. The criminal charges mark a new front in a high-stakes legal battle over whether prediction markets should be subject to the same rules as gambling companies.
Kalshi says it is a financial market, not a gambling operation, and should answer only to the Federal Commodity Futures Trading Commission, not the state of Arizona.
“The Attorney General’s Office disagrees with the court’s decision and we will evaluate our next steps,” said Richie Taylor, a spokesman for the Arizona Attorney General’s Office. The Associated Press emailed Kalsh and the federal commission seeking comment.
Kalshi operates by allowing clients to buy and sell “Yes” or “No” contracts linked to the possible outcome of an event. It has said its product is different from gambling operations because Kalshi’s customers engage in “trades” between each other rather than betting against the “house”.
In a lawsuit filed just days before prosecutors filed criminal charges, Kalshi argued that federal law trumps Arizona’s efforts to subjugate it to state statute. It also claims that shutting down its ability to offer event contracts would threaten its viability, undermine confidence in the integrity of its platform and cause other business problems.
The company said Arizona filed the charges to intervene in its lawsuit.
State attorneys contend that Kalshi advertised itself as a sports and election betting platform and that Arizona should be able to enforce its gambling laws to hold Kalshi liable for violating state law.
Kalshi sued Arizona, Utah and Iowa in an attempt to stop the state’s anticipated actions against the platform. Other states have taken some sort of legal action against Kalshi.
So far, the results have been mixed. Federal and state judges in Nevada and Massachusetts, respectively, issued early rulings in favor of states seeking to bar Kalshi and its competitor Polymarket from offering sports in their states, while federal judges in New Jersey and Tennessee have ruled in Kalshi’s favor.
Earlier this month, the federal government filed a lawsuit against Connecticut, Arizona and Illinois challenging their efforts to regulate prediction market operators.
The Trump administration has so far supported the platforms.
The eldest son of President Donald Trump is an advisor to Kalshi and Polymarket and an investor in the latter. Trump’s social media platform Truth Social is also launching its own cryptocurrency-based prediction marketplace called Truth Predict.
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