The US Department of Justice (DOJ) and Commodities and Futures Trading Commission (CFTC) asked a federal court to block Arizona from enforcing state gambling law against Kalshi’s event contracts, arguing that the contracts fall under the CFTC’s exclusive authority over swaps markets.
The Wednesday filing argues that event contracts listed on federally regulated platforms such as Kalshi are swaps under the Commodity Exchange Act and therefore fall within the CFTC’s exclusive jurisdiction.
The filing says Arizona’s enforcement effort unlawfully intrudes on the CFTC’s exclusive jurisdiction over federally regulated event-contract markets.
If granted, the order would block Arizona from applying its gambling laws to prediction markets that are listed as federally regulated event contracts. An arraignment in the criminal case against Kalshi is currently scheduled for April 13.
Arizona Attorney General Kris Mayes announced charges against the companies behind Kalshi on March 17, accusing them of operating an “illegal gambling business in Arizona without a license” and offering illegal election wagering.
Kalshi co-founder and CEO, Tarek Mansour, claimed the charges were a “total overstep” and “not about gambling.”
Federal and state regulators clash over prediction markets
The dispute has become a major test of whether prediction market contracts belong under federal commodities law or state betting rules.
On April 2, the CFTC filed three separate lawsuits against the gaming regulators of Illinois, Connecticut and Arizona, claiming that the event contracts offered by the platforms violated state gambling laws and licensing requirements.
In those suits, the CFTC says it has exclusive jurisdiction over CFTC-registered designated contract markets that list lawful event contracts. Kalshi is the clearest example in the current litigation.
Related: Kalshi, Polymarket face trading halt in Nevada after court rulings
Prediction markets are facing growing regulatory pressure in the US, where 11 states have pursued legal action against them.
Prediction market activity has been rising since the beginning of the US and Israeli military conflict with Iran, fueling renewed insider trading allegations, after six Polymarket traders netted $1 million by accurately betting on the US strike against Iran.
In response to insider trading concerns, Democratic Party Senator Adam Schiff has introduced legislation seeking to ban prediction markets on war, death and terrorism.
Magazine: Train AI agents to make better predictions… for token rewards
