In short
- Kalshi has filed a federal lawsuit against New York regulators who are trying to stop the state from treating its sports prediction markets as illegal gambling.
- The lawsuit came after an Oct. 24 cease-and-desist letter from the New York Gaming Commission, which threatened civil penalties unless Kalshi stopped contracting for sporting events.
- Judge Andrew P. Gordon previously denied Crypto.com’s order, the same judge who ruled in favor of Kalshi in a similar case.
Event contracting platform Kalshi filed a federal lawsuit against New York regulators on Monday, seeking to stop the state’s gaming commission from treating its sports prediction markets as illegal gambling, striking preemptively just weeks after rival Crypto.com lost a similar battle in Nevada.
The Manhattan-based company says federal law preempts state gambling rules on contracts traded on platforms overseen by the Commodity Futures Trading Commission. submit.
Kalshi sued after receiving a cease-and-desist order from the New York State Gaming Commission on Friday, requiring it to terminate its sporting event contracts or face civil penalties and possible criminal liability.
“In five of the six cases, Kalshi took the initiative and filed first because most states require prior notice before filing lawsuits against companies that engage in repeated and persistent violations of state law,” Daniel Wallach, founder and principal of Wallach Legal LLC, a law firm specializing in sports betting and gambling law, told me. Declutter.
This advance notice became “a warning to Kalshi” to reach federal court first and “narrowly frame the lawsuit” around whether federal law precludes state authority, rather than whether the contracts constitute legal gambling, he added.
By filing a complaint first, Kalshi avoids state court, where “the cases would be about whether these contracts are legal, not about who gets jurisdiction,” Wallach explains.
Win some, lose some
Kalshi won preliminary injunctions in New Jersey and Nevada but lost in Maryland, where a judge ordered a halt to sporting event contracts. Still, officials have allowed operations to continue while the case is resolved.
Two weeks ago, U.S. District Judge Andrew P. Gordon spoke in Nevada Crypto.com’s denied request for an injunctiona reversal of the same judge who had done it before ruled in favor of Kalshi in similar circumstances.
Initially, “Kalshi has been able to preliminarily effectively convince two courts that the broad definition of an exchange combined with the exclusive jurisdiction language gives the CFTC exclusive regulatory authority over any contract traded on CFTC-designated exchanges,” Wallach said.
Judge Gordon accepted this argument in Kalshi’s case and simply focused on whether the contracts technically qualified as swaps.
But in the case of Crypto.com, the judge ruled that the outcomes of sporting events do not qualify for treatment as an exchange, “because an exchange under the Commodity Exchange Act is contingent on the occurrence or non-occurrence of an event,” Wallach explained.
The courts analyzed the issue with Congress’ intent, he added, and concluded that the CFTC’s exclusive swaps jurisdiction was not intended to extend to contracts for sporting events, citing legislative history and comments from lawmakers.
Crypto.com must geofence Nevada by November 3 and close all open positions for sporting events for state residents pending the appeal, according to a Nevada Gaming Control Board notification.
Wallach predicts that Arizona and Illinois, which have issued cease and desist orders and warned state-licensed operators against prediction markets, will likely be the next to litigate with Kalshi.
He expects more states to file lawsuits against Kalshi, Robinhood and Crypto.com in the coming months as recent court decisions have gone in the states’ favor.
Kalshi and Crypto.com didn’t respond immediately Decode requests for comments.
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