A U.S. court has stopped Arizona from pursuing criminal charges against Kalshi.
A federal judge in Arizona has blocked the state from continuing its criminal prosecution of Kalshi, granting the Commodity Futures Trading Commission’s request for a temporary restraining order filed in support of the prediction market.
Judge Michael T. Liburdi issued the restraining order on Friday, April 10, preventing Arizona from enforcing its gambling statutes against Kalshi.
The ruling marks another recent victory for prediction markets in an escalating legal battle between federal regulators and state officials over who has the authority to govern the exchanges. Earlier last week, the Third Circuit Court of Appeals ruled 2-1 to uphold a preliminary injunction for Kalshi that blocks New Jersey from enforcing its cease-and-desist orders against the company.
Judge Liburdi concluded that the CFTC had cleared the legal hurdles required to secure emergency injunctive relief. This included his finding that the CFTC is likely to ultimately win the case on its main argument that federal commodities law preempts Arizona’s gaming laws.
The order bars Arizona from pursuing any criminal or civil enforcement action and remains in effect until April 24.
The Legal Dispute
The case represents another consequential chapter in a months-long confrontation between states and the prediction market industry. Several states argue that prediction market contracts constitute illegal gambling under state law.
Arizona moved aggressively and became the first state to initiate criminal proceedings against Kalshi. The CFTC, which serves as the lead regulator of prediction market platforms, filed lawsuits earlier this month against Arizona, Connecticut, and Illinois.
The suits seek declaratory judgments that confirm the CFTC’s exclusive authority and request permanent injunctions against the state’s cease-and-desist orders.. The agency also filed a motion for a temporary restraining order and a preliminary injunction that specifically targets the Arizona criminal proceedings.
The Court’s Analysis
In a four-page order, Judge Liburdi worked through a series of threshold questions before reaching his final decision. He applied the standard four-part test governing temporary restraining orders and ruled in the CFTC’s favor on each factor.
The court reaffirmed the longstanding principle that the U.S. government can bring suit to protect its interests, including the integrity of federal regulatory schemes. When addressing Younger abstention, a doctrine that usually discourages federal courts from interfering with ongoing state criminal proceedings, Judge Liburdi determined that it does not apply when the U.S. itself is a party to the federal action.
He also rejected Arizona’s laches defense, explaining that federal agencies are not subject to that equitable bar and that a two-week delay between the state’s action and the CFTC’s filing was reasonable.
The court focused its preemption analysis on how the Commodity Exchange Act defines a “swap.” Judge Liburdi determined that the term is broad enough to include event contracts.
The court ruled the CFTC is likely to succeed in its claim that Arizona’s gambling laws are preempted by the CEA.
Judge Liburdi’s ruling aligns with a decision that the Third Circuit Court of Appeals issued a few days earlier in KalshiEX LLC v. Flaherty, where the appellate court reached a similar conclusion to uphold a preliminary injunction blocking New Jersey from enforcing its state gambling laws against the company. The CFTC also successfully argued that a violation of the Supremacy Clause would cause irreparable harm.
Reactions to the Ruling
CFTC Chairman Michael Selig responded to the ruling on X. In a statement issued Thursday afternoon, he described Arizona’s strategy as an attempt to “weaponize state criminal law” against companies that operate in full compliance with federal requirements:
In an official CFTC statement, Selig said the court order firmly rebukes this tactic. He added that the ruling “sends a clear message that intimidation is not an acceptable tactic to circumvent federal law” and warned other states that are considering similar moves.
Kalshi’s Head of Government Relations, Robert DeNault, also welcomed the decision. Writing on X shortly after the announcement, he described the ruling as a meaningful step in the right direction:
He emphasized the CFTC’s assertion of exclusive jurisdiction and highlighted the court’s engagement with the constitutional and statutory issues at stake.
What Comes Next
The temporary restraining order keeps Arizona from enforcing its criminal case through April 24. The court will separately address the CFTC’s pending motion for a preliminary injunction before then. This form of relief would last longer and remain in place while litigation continues.
Courts typically evaluate preliminary injunctions using a similar framework to temporary restraining orders, so Thursday’s ruling signals how the court is likely to assess the CFTC’s chances on that motion.
The broader litigation against Illinois and Connecticut remains in its early stages, and courts have not issued comparable emergency orders in those cases.
If the court ultimately rules that the CFTC holds exclusive jurisdiction over event contracts, that decision would effectively eliminate state-level criminal exposure for platforms operating under federal licenses.
While such a ruling could help reshape the legal landscape of the prediction markets industry, the legal battle seems destined to be ultimately decided by the Supreme Court.
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