No dice for Kalshi in federal lawsuit against Utah

A federal judge ruled Utah can enforce its gambling laws against prediction market company Kalshi, rejecting the company’s argument that federal law shields it from state regulation.(CN) — A federal judge in Utah dealt a blow to the popular online prediction market Kalshi in a Tuesday decision, concluding federal law does not preempt Utah from enforcing gambling laws.The company, which has faced increasing scrutiny over claims its prediction contracts constitute illegal gambling, claimed the 1936 Commodity Exchange Act and the Commodity Futures Trading Commission Act protect it from state enforcement actions. But U.S. District Judge Robert Shelby sided with the state of Utah, which has taken a hard stance against the prediction markets.Kalshi argues the Commodity Exchange Act’s jurisdiction expressly prevents Utah and other states from enforcing anti-gambling laws against it because it operates as a federally regulated contract market.“Defendants contend Kalshi reads the jurisdiction provision too broadly, and Kalshi’s interpretation is inconsistent with other CEA provisions and leads to absurd results,” Shelby, a Barack Obama appointee, wrote. “The court agrees with defendants.”Shelby wrote the federal laws cited by Kalshi specifically state that they do not supersede or limit the jurisdiction of any state.“On its face, this language strongly signals there is room for state regulation as it relates to the province of the CEA,” he continued.Utah Attorney General Derek Brown hailed the victory as a win for Utah families.“You can’t rebrand illegal gambling as a federal commodity, and today a federal judge agreed with us,” Brown said in a statement. “Kalshi bet that clever branding would beat Utah law. Kalshi lost and Utah won. Utah’s constitution bans gambling to protect Utah families, and my office will enforce that ban. Gambling is gambling no matter what any company calls it.”Kalshi, however, remains steadfast in its position.“We disagree with today’s decision and will appeal,” company spokeswoman Jacki McGavick said in a statement. “Multiple courts have already recognized that prediction markets fall under exclusive federal jurisdiction, and we will continue to defend that position.”Prediction markets function by allowing users to trade contracts based on the outcome of future events, including categories such as sports, elections, business and even the weather.The legal drama between the prediction market and the state of Utah goes back to February after the Commodities Futures Trading Commission Chairman Mike Selig publicly announced the commission would defend prediction markets, such as Kalshi and Polymarket, from state actions.Utah Governor Spencer Cox doubled down.“These prediction markets you are breathlessly defending are gambling — pure and simple,” he wrote in a post on X. “They are destroying the lives of families and countless Americans, especially young men. They have no place in Utah.”The following week, Kalshi filed its lawsuit against the state. Nearly two dozen Native American tribes and gaming associations from around the country joined Utah in the lawsuit.Seeking to block the state’s anti-gambling enforcement, the company filed a motion for a preliminary injunction in April. In May, the Utah Attorney General’s Office responded with a motion to dismiss or, alternatively, a motion for summary judgment.Kalshi relied partially on the passage of the Dodd-Frank Act, which expanded the Commodity Exchange Act’s authority, in the fallout of the 2008 financial crisis.In his decision, Shelby wrote that states have long regulated gambling and that there was no indication that lawmakers intended to diminish that authority after the financial crisis.“It is simply implausible that Congress would silently reverse course through an act addressing the 2008 housing financial crisis,” the judge wrote. “Given the CEA’s framework and the history of state regulation of gambling, the court cannot conclude the CEA is so pervasive that there is no room for the state of Utah to supplement it.”Utah is just one of multiple states that have gone after prediction markets. Others include Washington, Nevada, Arizona and New York.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads