Kalshi Fails to Secure Arizona Injunction as CFTC Seeks to Halt State Enforcement

(AsiaGameHub) –   The legal battle over prediction markets pressed on in Arizona Wednesday, following a federal judge’s rejection of Kalshi’s attempt to halt a state criminal case—clearing the way for the prosecution to proceed even as federal regulators ramp up their own actions to shut the platform down.

Wednesday’s decision follows Arizona’s status as the first state to file criminal charges against a prediction market operator regulated by the Commodity Futures Trading Commission (CFTC), propelling the high-profile jurisdictional dispute over such exchanges into uncharted legal ground.

In an order dated April 8, U.S. District Judge Michael Liburdi turned down Kalshi’s request for a preliminary injunction, determining that the Anti-Injunction Act prohibits federal courts from stopping active state criminal cases.

Since the United States joined the dispute and contended that Arizona’s enforcement actions are preempted by federal law, the court stated it would not abstain under the Younger doctrine—a legal rule that typically mandates federal courts refrain from interfering in active state criminal proceedings.

As Liburdi explained, “The presence of the federal sovereign is determinative in that it forecloses Younger abstention.”

This leaves Kalshi confronting criminal charges in Arizona for the time being, while the U.S. government and CFTC launch a simultaneous effort to prevent the state from pursuing the case entirely.

Judge Rejects Kalshi’s Request for Relief Under Anti-Injunction Act

In his order, Liburdi observed that “technology often sprints faster than the law can keep pace” and that the case compelled the court to tackle “threshold issues concerning the limits of federal judicial power.”

The primary obstacle was the Anti-Injunction Act, which he characterized as “an absolute prohibition against any injunction of any state-court proceedings.”

Per the court’s conclusions, the act applies “so long as state proceedings are pending” when the federal court reviews the request—effectively derailing Kalshi’s effort to pause Arizona’s case.

Since Arizona had already filed 20 criminal counts against Kalshi—activating the Anti-Injunction Act—the judge determined he was “barred by statute from issuing the injunction.”

In a post on X, sports betting and gaming attorney Daniel Wallach stated that the ruling might alter how states handle enforcement actions against prediction markets.

“State court enforcement actions now offer the additional benefit of barring Kalshi from seeking preliminary injunctive relief vs. states in federal court,” he wrote, adding that the decision might prompt more states to pursue lawsuits rather than issue cease-and-desist orders.

Wallach also noted that states have a perfect 4-0 record against Kalshi in state court. Additionally, he said that if states adopt Arizona’s approach, the CFTC will file more lawsuits against them.

Currently, by filing criminal charges against Kalshi, Arizona may have discovered an effective method to keep such cases in state court—even if this strategy raises the likelihood of federal regulators stepping in.

By taking this action, Arizona may also have provided other states with a more effective procedural guide for targeting prediction markets.

CFTC Seeks to Halt Arizona’s Enforcement in Concurrent Filing

On the same day Kalshi’s request was rejected, the U.S. government and CFTC submitted their own motion for a temporary restraining order and preliminary injunction, asserting that Arizona had exceeded its authority.

In the filing, they argue that the state is “unconstitutionally intruding on the CFTC’s exclusive regulatory jurisdiction” over derivatives markets.

The federal government cautioned that permitting this would lead to “subjecting those markets to a patchwork of 50 state regulations is precisely what Congress sought to avoid.”

The motion also references the Third Circuit’s April 6 decision in KalshiEx, LLC v. Flaherty from New Jersey, quoting its finding that “Because Kalshi’s sports-related event contracts are traded on a CFTC-licensed DCM and depend on event outcomes associated with economic consequences, they fit within the Act’s definition of ‘swaps’ subject to the CFTC’s jurisdiction.”

For the moment, the Arizona case will proceed, but the federal government’s involvement creates a direct clash over whether states can classify prediction markets as gambling or if they fall exclusively under federal derivatives law.