Feds Seek to Prevent Enforcement of State Gambling Laws Against Prediction Markets

The United States and the CFTC filed a Motion for a Preliminary Injunction and Temporary Restraining Order seeking to halt Arizona from applying state criminal and gambling laws against federally regulated prediction markets.

According to the Motion, filed in the US District Court for the District of Arizona, the conflict originated on May 21, 2025, when the Arizona Department of Gaming issued a cease-and-desist letter to KalshiEx LLC, a CFTC-regulated designated contract market ("DCM"), accusing the platform of accepting illegal wagers. After Kalshi filed a civil lawsuit against Arizona to challenge this action, the State escalated the dispute by filing criminal charges against KalshiEx LLC and Kalshi Trading LLC for "Betting and Wagering" under state law, with an arraignment scheduled for April 13, 2026.

The federal government's Motion relies on several arguments, including that the:

• Commodity Exchange Act ("CEA") establishes a comprehensive federal framework for derivatives markets and grants the CFTC "exclusive jurisdiction" over these markets. Consequently, the CEA expressly and implicitly preempts state gambling laws from being applied to CFTC-regulated exchanges.
• Event contracts—including those based on political elections or sporting events—qualify as "swaps" under the plain text of the CEA because their outcomes are associated with potential financial, economic, or commercial consequences.
• Arizona's attempt to criminally prosecute a federally compliant entity violates the Supremacy Clause of the U.S. Constitution by interfering with federal law and subjecting national markets to a fragmented patchwork of state regulations.
• The federal government would suffer a "sovereign injury" if its exclusive regulatory authority is undermined by impermissible state regulations. 

This legal action in Arizona is part of a wider enforcement initiative by the CFTC to protect its jurisdiction over prediction markets. The CFTC has also filed complaints seeking declaratory judgments and permanent injunctions against Connecticut and Illinois, both of which had similarly issued cease-and-desist letters to CFTC-regulated entities.