A federal court has ruled that US states may retain the authority to enforce their gambling laws against prediction-market operators, setting up a broader legal fight over whether federal commodities law prevents state regulation. The dispute involving Kalshi and Utah comes as federal courts have reached conflicting conclusions about state oversight of sports and other event contracts, making a Supreme Court review increasingly likely.
Judge Shelby determined that the text of US law does not prohibit state regulation. Federal law states that the Commodity Futures Trading Commission’s (CFTC) jurisdiction “is not intended to supersede or limit the jurisdiction vested in the courts of the United States or any other state” and “expressly provides for state regulation of gaming law in all but a few specific cases,” he wrote.
“Congress recognizes that some states allow gambling while others do not, and the CEA expressly provides for state jurisdiction,” Shelby wrote.
Most US states want a Supreme Court ruling
Kalshi is appealing its loss to the 10th Circuit Court of Appeals but has been unable to obtain an injunction preventing Utah from enforcing its gambling ban while the case proceeds. On September 8, a 10th Circuit judge rejected Kalshi’s emergency motion seeking an injunction while the appeal is pending. Utah filed a lawsuit roughly six weeks later seeking to shut down Kalshi.
The CFTC’s lawsuit against Utah makes claims similar to those that the district court rejected, although other courts have reached different conclusions.
“Utah is not the first state to attempt to violate the Commission’s exclusive jurisdiction over swaps,” the CFTC’s lawsuit says. “Already, several federal courts, including the Third Circuit, have responded quickly by issuing or affirming temporary restraining orders or preliminary injunctions prohibiting states from enforcing their gaming laws against CFTC-regulated exchanges that offer sports-related and other event contracts.”
The Third Circuit Court of Appeals has ruled that New Jersey cannot regulate sports betting on prediction markets. However, Kalshi lost similar cases in the Sixth and Ninth Circuits, which ruled in favor of Ohio, Tennessee, and Nevada.
The Supreme Court may take up the dispute to determine whether states can apply their gambling laws to prediction markets, since the circuit courts are divided on the issue. New Jersey petitioned the Supreme Court to resolve the circuit split, and 39 other states and the District of Columbia filed an appeal. The filing supports New Jersey’s petition.
Source: arstechnica.com