Federal Judge Allows Arizona Criminal Case Against Online Prediction Market Kalshi
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A federal judge in Phoenix has refused to block Arizona Attorney General Kris Mayes from pursuing a criminal case against Kalshi, an online prediction market platform that allows users to bet on political and social events.
The ruling marks a significant victory for Mayes, who filed the first-of-its-kind criminal case against the company on March 17, alleging Kalshi is operating an illegal gambling business by allowing bets on elections and other events not covered by state gaming laws.
Judge Rejects Federal Jurisdiction Argument
Kalshi argued that its platform operates under federal law exclusively, pointing to the Commodity Futures Trading Commission (CFTC), which regulates futures contracts. The company's attorneys compared their platform to the Chicago Mercantile Exchange, where commodities such as corn, cattle and oil are traded.
In a 15-page ruling, U.S. District Court Judge Michael Liburdi acknowledged there is a legal conflict between Kalshi and the state about whose laws take precedence. But Liburdi said it was premature to rule on whether Kalshi's contracts constitute "swaps" under the federal Commodity Futures Act.
The judge relied on the Anti-Injunction Act, which prevents federal courts from blocking proceedings in state court except in narrow exceptions. Liburdi said that act applies as long as there is a case in state court, allowing Mayes to proceed with her criminal charges.
Federal Government Files Counterclaim
The legal battle has expanded beyond the state and company. The Trump administration's Department of Justice and the CFTC filed a motion in federal court to block the state case, arguing the CFTC has exclusive jurisdiction over prediction markets like Kalshi.
CFTC Chairman Michael S. Selig stated, "Arizona's decision to weaponize preempted state criminal law against companies that comply with a comprehensive federal regime sets a dangerous precedent. The CFTC is committed to vigorously defending its exclusive authority over prediction markets."
The judge will hear arguments on the DOJ and CFTC's request on Friday at the Phoenix federal courthouse, but for now, Mayes can continue her case.
What Kalshi Charges
Mayes has charged Kalshi with 20 criminal counts. Four counts involve illegal wagering on elections, based on bets filed by an investigator from her office between December 2025 and February 2026. One of those election wagers involved whether Andy Biggs would win the Republican Party primary for governor.
Each of those election wagers carries a maximum penalty of $10,000.
The remaining 16 counts involved sports bets, ranging from the outcome of a women's basketball game between Arizona State University and the University of Arizona, to whether Phoenix Suns player Devin Booker would score more than 25 points in a specific game against the Indiana Pacers. Each carries a $20,000 penalty.
What Kalshi Offers
On the Kalshi website, customers can put money down on a wide variety of outcomes including:
- Whether the unemployment rate will reach certain levels
- Tariff rates on imports from China
- Whether the film Dune will win an Oscar
- Sports outcomes
Kalshi contends these are financial instruments, not gambling. But state law allows only regulated entities to take wagers and only on sporting events.
Next Steps
The company faces its first hearing this Monday in Maricopa County Superior Court. Mayes's office said lawyers are analyzing the ruling and will proceed with their case.
This case represents an unusual legal battle between state and federal authority over what constitutes gambling versus financial trading, with significant implications for how online prediction markets operate across the country.
The outcome could set important precedents for how states can regulate digital gambling platforms and whether the federal government can block state enforcement actions.