Temporary injunction allows ongoing operation of prediction markets in Arizona, as CFTC launches taskforce to develop “clear regulatory framework”
The US District Court for the District of Arizona granted a temporary injunction to the Commodity Futures Trading Commission on Friday afternoon, preventing Arizona from moving forward with legal action against prediction market providers such as Kalshi.
The CFTC applied for an injunction on Wednesday (March 8) after the US District Court for Arizona denied Kalshi’s motion for a preliminary injunction and temporary restraining order to prevent Arizona from applying state criminal and gambling laws against it.
Kalshi is facing criminal charges in Arizona for operating an illegal gambling business.
The charges were filed in March by Arizona Attorney General Kris Mayes, who accuses Kalshi of violating the state’s gambling laws with its sports-related event contracts, and the state’s ban on election betting with its election contracts.
Friday’s temporary restraining order has effect until April 24.
The court granted the motion after finding that the CFTC “has made a clear showing that it is likely to succeed on the merits of its claim that Arizona’s gambling laws are preempted by the Commodity Exchange Act (CEA)”.
The court also accepted the CFTC’s argument that event contracts fall within the definition of a “swap” under the CEA, and that the CEA field preempts Arizona law.
The court added that it agrees with and adopts the view that if “event contracts are swaps under the Act, … the scope of field preemption is the regulation of trading on a DCM.”
“The CFTC appreciates the court’s careful consideration of these important legal questions and the court’s decision to preserve the status quo,” said CFTC chairman Michael Selig. “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.”
The court’s decision came as the CFTC named the first five members of its new Innovation Task Force (ITF), which will help to develop regulations for innovative products and technologies.
The work of the task force will enable the Commission to develop a clear regulatory framework for crypto assets and blockchain technologies, artificial intelligence and autonomous systems, and prediction markets and event contracts.
“The Innovation Task Force brings together a leading team that exhibits deep expertise and an enthusiastic commitment to deliver clear rules of the road for American innovators,” said Selig.
The initial members of the ITF are senior advisors Hank Balaban, Sam Canavos, Mark Fajfar, Eugene Gonzalez IV, and Dina Moussa.
Balaban previously practiced law at Latham & Watkins in the firm’s Digital Asset and Emerging Companies practice groups.
Canavos was previously a consultant at Patomak Global Partners, where he advised firms on U.S. regulatory matters related to innovative technologies, including crypto and prediction markets.
Fajfar joins the ITF from the CFTC’s Office of the General Counsel and Moussa joins from the CFTC’s Market Participants Division.
Gonzalez previously practiced law at Sidley Austin in the firm’s Blockchain and FinTech practice group.