A judge blocks Arizona from regulating prediction markets, halts the lawsuit against Kalshi

A federal district court in the United States recently issued a ruling in the legal dispute between the prediction market platform Kalshi and the state government of Arizona. The court temporarily barred the state from enforcing the gambling-related regulations against the platform and simultaneously stayed the related criminal proceedings. This ruling initially clarified the priority order between the federal government and state governments regarding regulatory authority over financial derivatives.

The judge says federal government has legal priority jurisdiction

In the ruling, U.S. district judge Liburdi (Michael Liburdi) stated 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 meet the definition of Swaps under the Commodity Exchange Act. Under the regulation, the CFTC has Exclusive Jurisdiction “exclusive jurisdiction” over the products traded on a designated contract market. The judge held that federal law takes priority in regulating such financial products, so Arizona’s attempt to govern the market through state-level gambling regulations exceeded its enforcement authority. After the order was issued, the criminal bail hearing originally scheduled for Monday was canceled, indicating that federal courts are inclined to protect a unified regulatory framework for financial markets nationwide.

Kalshi insists event contracts are a new type of financial instrument

Arizona’s attorney general’s office previously brought 20 misdemeanor charges against Kalshi, alleging that the platform illegally accepted bets involving political election outcomes, college sports events, and players’ individual performance, while emphasizing that the state strictly bans unlicensed gambling operations. However, Kalshi argued that its operating model is not traditional gambling, but rather offers customers the buying and selling of “yes” or “no” contracts based on event outcomes. Kalshi said that what customers trade with each other is a risk swap, not a wager between players and a bookie 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 a prediction market platform, which triggered a ripple effect. In addition to Arizona, Kalshi is also facing legal pressure in Utah and Iowa. At present, rulings vary by jurisdiction: Nevada and Massachusetts support the state government’s injunction, 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 filing lawsuits through federal agencies against Connecticut, Arizona, and Illinois, questioning whether local governments interfere with federal regulatory activities. It argues that using state law to go after compliant financial companies will set a dangerous precedent.

The development of prediction platforms is closely intertwined with political forces. The eldest son of President Trump is an adviser to Kalshi and Polymarket and is also an investor in the latter. Truth Social, the Trump-owned social media platform, is reportedly planning to launch a crypto-based prediction market called Truth Predict.

Kalshi argues that if states enforce gambling laws independently, it will 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. Rich Taylor, a spokesperson for the Arizona attorney general’s office, disagreed with the judge’s decision to pause the case against Kalshi and said it will assess its next steps.

This article Judge blocks Arizona from regulating prediction markets, pauses prosecution of Kalshi first appeared on Chain News ABMedia.