Kalshi has been granted a preliminary injunction from U.S. District Judge Aleta A. Trauger, after she agreed with Kalshi on a number of grounds, including that the prediction market platform is likely to succeed in its argument that its sports-event contracts are "swaps" under the Commodity Futures Trading Commission (CFTC), as opposed to gambling.
Key Takeaways
- A Tennessee U.S. District Judge has granted Kalshi a preliminary injunction preventing state officials from enforcing state betting laws.
- It follows Nevada filing a suit against Kalshi as it attempts to enforce state gambling laws on the platform.
The injunction prevents state regulators from enforcing the state's betting laws against the platform. It follows state regulators previously sending cease-and-desist orders to Kalshi and other operators, including Polymarket and Crypto.com, stating they were operating without a license under the Tennessee Sports Gaming Act and threatened enforcement.
Authorities argued that the contracts offered by Kalshi are dependent on the “outcome” of a sports event as opposed to the “occurrence” of an event as stipulated by the law. However, Judge Trauger ruled that "the outcome of an event can be an occurrence, too."
A number of U.S. states have challenged Kalshi and other prediction markets over the last year, stating that the platforms violate state gambling laws for operating without betting licenses. However, Kalshi has continued to argue that the contracts fall under federal commodities law, as they are regulated by the CFTC, which pre-empts state law.
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Civil enforcement filed against Kalshi in Nevada
Earlier this month, the Nevada Gaming Control Board filed a suit against Kalshi to stop the platform from offering sports-event contracts to Nevada residents, continuing the fight over whether prediction markets fall under state gambling laws or federal regulation.
Kalshi had attempted to prevent the action by filing an injunction. However, a federal appeals court overruled the lower court's November order and dissolved the injunction that had previously prevented the Board from taking enforcement action against the platform.
“The Board continues to vigorously fulfill its obligation to safeguard Nevada residents and gaming patrons, and uphold the integrity of a thriving gaming industry,” said Nevada Gaming Control Board chairman Mike Dreitzer in a press release.
If Nevada succeeds in enforcement, it will become the second state to secure a court order against the prediction market, following a Massachusetts judge who granted an injunction earlier this month. However, the order was later put on hold, pending appeal.
Kalshi has now sought to move the case to federal court, arguing that the dispute hinges on the CFTC's sole jurisdiction.
The CFTC spoke out against states attempting to enforce their gambling rules on prediction markets earlier this week. Chairman Michael Selig stated that the CFTC will be reinforcing its position as the regulator of prediction markets and will file an amicus brief in the Ninth US Circuit Court of Appeals, supporting Crypto.com in its dispute with the Nevada Gaming Control Board.
