A growing list of states opening investigations into and issuing cease-and-desist letters to Kalshi, yet a recent ruling by a federal judge gives Kalshi and similar operators life to continue offering online prediction markets.
Earlier this week, District Judge Andrew P. Gordon granted Kalshi a preliminary injunction that allows the group to continue its operations in Nevada. That alone can tell a short story, but Gordon’s written ruling provides even more context and tone that seemingly supports these firms to keep their doors open for business.
What amounts to a significant early win for Kalshi, Gordon wrote that he saw “no evidence” that the Commodity Futures Trading Commission (CFTC) — the federal regulator that Kalshi has frequently cited as its reasoning for not needing to abide by state-specific laws regarding sports betting — “has taken action to prevent Kalshi from offering sports-based event contracts.”
“As a result,” Gordon continued, “at this point in time, federal law allows Kalshi to offer both sports and election-based event contracts on its exchange.”
Commodity Exchange Act preempts state gambling laws
This ruling, of course, comes on the heels of Kalshi filing lawsuits against both Nevada and New Jersey. (We still await a ruling in New Jersey, with a hearing on a preliminary injunction motion coming after both the state and Kalshi submit briefs, the last of which is due April 23.)
Kalshi filed the lawsuits after Nevada and New Jersey sent out cease-and-desist letters to the firm, emphasizing that Kalshi, as well as Robinhood and Crypto.com, violated their respective state laws pertaining to legal sports betting. Kalshi pointed to the CFTC as the only regulatory body it needed to oblige. Essentially, the firm argued, the Commodity Exchange Act (CEA) preempts any state gambling laws.
If Gordon’s written ruling is any indication, the federal judge agrees.
“Nevada regulatory agencies thus have no jurisdiction to decide that Kalshi’s conduct violates state law where, at least at present, those activities are legal under federal law,” Gordon wrote.
“Because the CFTC has approved (or at least not yet disapproved) Kalshi’s sports-related contracts, the defendants cannot pursue civil or criminal liability against Kalshi for offering those contracts.”
Nevada ‘missed the bigger picture,’ expert says
Indicating that Nevada authorities did not provide enough evidence that Kalshi violates state law, Gordon noted that the defendants “have not cited any authority that the CFTC does not have exclusive jurisdiction over the exchanges it designates.”
Basically, the federal judge said, if Kalshi was not licensed by the CFTC, then Nevada could regulate the prediction platform.
“But,” Gordon added, “because Kalshi is a CFTC-designated DCM [designated contract maker], it is subject to the CFTC’s exclusive jurisdictions and state law is field preempted.”
Andrew Kim — a partner in Goodwin Procter’s appellate and Supreme Court litigation and gaming, gambling and sweepstakes practices — told The Closing Line that Gordon’s ruling “isn’t surprising in the least.”
“Nevada was too ‘in the weeds’ and too focused on trying to protect its gaming interests,” Kim said, “that it missed the bigger picture, which is that this is really a federalism fight.
“It’s a case of bringing a knife to a gunfight.”
What future may hold for Kalshi now
Moving forward, this ruling provides Kalshi with some additional firepower for any future run-ins with state authorities: A judge on record agreeing with Kalshi.
Should a judge in New Jersey come to a similar conclusion, states could find it more difficult to ban federally regulated online prediction markets.
Of course, the CFTC could revisit its regulatory framework, perhaps even amend its rules that would make Kalshi’s business model as unlawful.
That’s the goal for Nevada Rep. Dina Titus, who penned a letter to the CFTC and urged the commission to “exercise its authority … to ensure this unlawful activity does not persist.”
As Titus wrote, the CFTC “has a responsibility to enjoin entities under its regulatory purview from actively violating the laws.”
“It seems clear,” Titus wrote, “that Kalshi’s, and similar platforms’, intent is not only to disregard the Commission’s process and procedure but also circumvent state abilities to regulate and tax gaming.”
