In brief
Kalshi has filed a federal lawsuit against New York regulators seeking to block the state from treating its sports prediction markets as illegal gambling.
The suit came after an October 24 cease-and-desist letter from New York’s gaming commission threatening civil penalties unless Kalshi halted sports-event contracts.
Judge Andrew P. Gordon previously denied Crypto.com’s injunction, the same judge who ruled in Kalshi’s favor in a similar case.
Event-contract platform Kalshi filed a federal lawsuit against New York regulators on Monday, seeking to block 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 the federal law preempts state gambling regulations for contracts traded on platforms overseen by the Commodity Futures Trading Commission in its filing.
Kalshi sued after receiving a cease-and-desist letter from the New York State Gaming Commission on Friday, demanding that it halt its sports-event contracts or face civil penalties and potential criminal liability.
“In five out of six cases, Kalshi took the initiative and sued first because most states require advance notice before filing lawsuits against businesses 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 wagering and gaming law, told Decrypt.
This advance notice became “a heads up for Kalshi” to reach federal court first and “narrowly frame the lawsuit” around whether federal law preempts state authority, rather than whether the contracts are legal gambling, he added.
By filing first, Kalshi avoids the state court, where “the cases would be about whether these contracts are legal, not who gets to have jurisdiction,” Wallach explained.
Win some, lose some
Kalshi won preliminary injunctions in New Jersey and Nevada, but lost in Maryland, where a judge ordered it to halt sports-event contracts. Yet, officials have allowed operations to continue while the case is resolved.
Two weeks ago, U.S. District Judge Andrew P. Gordon in Nevada denied Crypto.com’s request for an injunction, a reversal from the same judge who had previously ruled in Kalshi’s favor in similar circumstances.
Initially, “Kalshi has been able to effectively persuade two courts preliminarily that the broad definition of a swap coupled 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, focusing simply on whether the contracts could technically qualify as swaps.
But in Crypto.com’s case, the judge determined that the outcomes of sporting events do not qualify for treatment as a swap, “because to be a swap under the Commodity Exchange Act, it depends on the occurrence or non-occurrence of an event,” Wallach explained.
The courts analyzed the question through congressional intent, he added, and concluded it did not intend the CFTC’s exclusive swaps jurisdiction to cover sports event contracts, citing legislative history and lawmakers’ comments.
Crypto.com must geofence Nevada by November 3 and close all open sports-event positions for state residents pending its appeal, according to a Nevada Gaming Control Board notice.
Wallach predicts Arizona and Illinois, which have issued cease and desist letters and warned state-licensed operators against prediction markets, will likely be next to litigate with Kalshi.
He expects more states to file cases against Kalshi, Robinhood, and Crypto.com in the coming months, as recent court decisions have favored the states.
Kalshi and Crypto.com did not immediately respond to Decrypt’s requests for comment.
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