Federal regulators filed a lawsuit in an Arkansas federal court on November 12, seeking to halt state enforcement actions against prediction market operator Kalshi.
The U.S. government and the Commodity Futures Trading Commission filed the complaint in the U.S. District Court for the Eastern District of Arkansas, naming the state and Attorney General Tim Griffin as defendants. Kalshi operates a platform allowing users to trade event contracts on outcomes including elections and sports.
The CFTC designated Kalshi as a designated contract market in November 2020.
.@CFTC Files Lawsuit Against Arkansas as the Agency Defends its Federal Jurisdiction Over Prediction Markets: https://t.co/DF8C1RRp9Q
Attorney General Griffin filed a lawsuit against two Kalshi operating companies in an Independence County circuit court on November 4, alleging that offering wagers on sports outcomes violates state prohibitions on unregulated gambling. The state complaint cites deceptive trade practices and demands restitution, civil penalties, tax payments, and injunctions, while also objecting to the platform’s 18-year-old age limit.
The federal complaint notes that civil penalties under the state statute could reach up to $10,000 per violation. With Kalshi’s fees typically ranging from $0.07 to $2.63 per 100 contracts, state penalties could total hundreds of millions of dollars.
The CFTC argues that Kalshi’s event contracts constitute swaps under the Commodity Exchange Act, granting exclusive regulatory authority to the federal agency. The federal filing asks the court to declare that state laws cannot apply to trades executed on designated contract markets under the Supremacy Clause of the Constitution.
“We will continue to defend the exclusive jurisdiction that Congress gave the CFTC under the Commodity Exchange Act, and we will not allow state interference to break markets that are under federal regulation,” said Chairman Michael Selig.
The lawsuit also highlights a conflict with a CFTC interpretation issued on November 5, which directs designated markets to end domestic geographic restrictions within 30 days. The federal agency contends that state enforcement actions force Kalshi to suspend services to state residents, creating a direct violation of federal rules.
The Arkansas action follows 10 prior state legal disputes where the CFTC sought to block state enforcement of gambling laws, beginning with Arizona, Connecticut, and Illinois. Federal courts have granted preliminary injunctions in favor of the government in Arizona, Illinois, and Minnesota.