Federal Judge Blocks Arizona From Enforcing Gambling Laws Against Prediction Market Operator Kalshi

A federal judge on Friday temporarily barred Arizona from enforcing its gambling laws against prediction market operator Kalshi, halting a criminal prosecution that state prosecutors had filed against the company.

U.S. District Judge Michael Liburdi of the District of Arizona issued the temporary restraining order in response to a lawsuit filed by the Commodity Futures Trading Commission (CFTC). The ruling means that Arizona cannot hold the scheduled arraignment hearing for Kalshi on Monday, April 13.

The ruling came just days after Arizona filed 20 misdemeanor criminal charges against Kalshi, alleging the company was running an unlicensed wagering business in violation of state law.

State prosecutors accused Kalshi of accepting bets on political outcomes, college sports, and individual player performance. Arizona is the first state to file criminal charges against a prediction market operator. The state prohibits operating an unlicensed wagering business and betting on elections.

"The Act grants the CFTC 'exclusive jurisdiction' over the regulation of 'swaps,' traded or executed on a Designated Contract Markets," the judge's order stated.

Kalshi maintains it operates a financial marketplace rather than a gambling operation, and should answer only to federal regulators under the Commodity Exchange Act.

The company allows customers to buy and sell "Yes" or "No" contracts tied to the probable outcome of real-world events. Kalshi argues its product differs from gambling because customers engage in swaps between one another instead of betting against a "house."

"Arizona's decision to weaponize state criminal law against companies that comply with federal law sets a dangerous precedent," said Robert DeNault, head of enforcement at Kalshi.

The Commodity Futures Trading Commission sued Arizona in response to cease-and-desist letters sent to Kalshi from state gambling regulators and the criminal charges.

CFTC Chair Michael Selig stated that the regulator "appreciated" the judge's decision.

"Arizona's decision to weaponize state criminal law against companies that comply with federal law sets a dangerous precedent, and the court's order today sends a clear message that intimidation is not an acceptable tactic to circumvent federal law," Selig said.

The federal government filed lawsuits against Connecticut, Arizona and Illinois challenging their efforts to regulate prediction market operators.

The Trump administration has backed the platforms. President Donald Trump's eldest son serves as an adviser for both Kalshi and Polymarket, and is an investor in the latter. Trump's Truth Social platform is also launching its own cryptocurrency-based prediction market called Truth Predict.

Judge Liburdi has ruled on this matter before, previously denying Kalshi's attempts to bar prosecutors from moving forward with the case and declining a request from the company for a ruling saying federal law trumps Arizona's gambling laws.

The judge stated it was too early in the case for him to rule definitively on whether federal law preempts state law. He granted the temporary restraining order for two weeks.

Other states have taken some form of legal action against Kalshi with mixed results.

Federal and state judges in Nevada and Massachusetts issued early rulings in favor of states looking to ban Kalshi and its competitor Polymarket from offering sports betting in their states. Federal judges in New Jersey and Tennessee have ruled in favor of Kalshi.

Richie Taylor, a spokesperson for the Arizona Attorney General's Office, said the office disagrees with the court's ruling and will evaluate next steps.

The case marks a new front in the high-stakes legal battle over whether prediction markets should be subject to the same rules as traditional gambling companies.

Arizona filed the charges to enforce state law and hold Kalshi accountable for flouting gambling regulations, according to state lawyers. The company contends that shutting down its ability to offer event contracts would threaten its viability and undermine confidence in the integrity of its platform.

Kalshi sued Arizona, Utah and Iowa in attempts to stop anticipated state actions against the platform. The outcomes have been mixed across different jurisdictions.

The temporary restraining order prohibits Arizona from enforcing its gambling laws in any criminal or civil enforcement actions to contracts listed on CFTC-regulated designated contract markets.

A pending motion for a preliminary injunction could extend the temporary restraining order if granted.