In an extraordinary intervention, the DOJ and CFTC have asked a Phoenix judge to halt Arizona's criminal case against prediction market Kalshi, arguing that sports and election event contracts are swaps under federal law and beyond the reach of state gambling statutes.
The US Department of Justice and the Commodity Futures Trading Commission have asked a federal judge in Phoenix to block Arizona's criminal prosecution of prediction market Kalshi, arguing that the platform's sports and election event contracts are swaps under federal law and therefore entirely outside the state's gambling jurisdiction. The motion, filed on 8 April in the US District Court for the District of Arizona, escalates what was already the most aggressive state-federal confrontation over prediction markets to date. The judge is expected to hear oral argument today.
The dispute began on 17 March when Arizona Attorney General Kris Mayes filed first-of-its-kind criminal charges against Kalshi under state anti-gambling statutes, alleging that the platform was running an illegal bookmaking operation by letting users trade event contracts tied to sports outcomes and political events. An arraignment is scheduled for 13 April. Kalshi responded by asking US District Judge Michael Liburdi to enjoin the Arizona proceeding on federal preemption grounds — and lost. Liburdi ruled that the federal Anti-Injunction Act prevents a US court from halting an ongoing state criminal case except in narrow circumstances Kalshi had not demonstrated.
The motion filed this week is Washington's answer to that ruling. Because a private company cannot get around the Anti-Injunction Act, the argument goes, the federal government itself must step in. The DOJ and CFTC have filed on their own behalf, not as amici, and are seeking both an injunction and a temporary restraining order against Mayes and the relevant Arizona prosecutors. The legal theory is unambiguous: the Commodity Exchange Act gives the CFTC exclusive jurisdiction over swaps, Kalshi's event contracts are swaps, and any state criminal statute that punishes the sale of those contracts is preempted as a matter of federal law.
CFTC Chairman Michael S. Selig put the posture bluntly. "Arizona's decision to weaponize preempted state criminal law against companies that comply with a comprehensive federal regime sets a dangerous precedent," he said in a statement accompanying the filing. The phrase "weaponize preempted state criminal law" is not the language of a regulator trying to preserve optionality. It is the language of a regulator that has chosen its side of the jurisdictional fight and is prepared to bring the DOJ with it.
The immediate stakes are enormous for Kalshi, which has built its business model on the premise that a CFTC-registered designated contract market can list event contracts across the country without needing to clear each state's gambling authority one jurisdiction at a time. That premise is currently winning: the Third Circuit ruled 2-1 on 6 April in KalshiEX v. Flaherty that the Commodity Exchange Act preempts New Jersey's state gambling law as applied to sports event contracts on CFTC-registered markets. But a favourable civil preliminary injunction in the Third Circuit does not automatically stop an Arizona criminal prosecution in the Ninth, and the DOJ's intervention is an attempt to close that gap before the arraignment on Monday.
For crypto-native prediction markets like Polymarket — and for the growing list of regulated venues including Robinhood, Crypto.com and the rebuilt Binance.US derivatives arm — the ripple effects are direct. If the Arizona court accepts the federal argument and blocks the prosecution, state attorneys general across the country will have little appetite for follow-on criminal cases against any CFTC-registered venue. If it refuses, the category faces the prospect of operating on a patchwork map where individual state prosecutors can criminalise a business model that has a federal licence. That is not a tenable position for a venue aiming to list contracts on the 2028 presidential election.
The politics are also more visible than usual. Mayes is a Democrat; Selig is the Atkins-era CFTC chairman installed in January to pursue a principles-based crypto framework. The Arizona filing last month came from a state law enforcement apparatus increasingly willing to go after prediction markets at the retail end — where the line between financial speculation and sports betting is thin enough that most voters would call it gambling and move on. The federal answer turns on a technical question — whether an event contract is a swap — but the underlying political fight is about who gets to regulate consumer financial products that look like gambling. The CFTC's answer, for now, is: we do, and the states do not.
A ruling from the Phoenix court today would not end the fight. The Ninth Circuit will hear consolidated oral arguments on 16 April in cases involving Kalshi, Robinhood and Crypto.com challenging Nevada's Gaming Control Board. That panel could well split with the Third Circuit, and a circuit split is the fastest route to the Supreme Court. The 13 April arraignment in Phoenix is the next thing to watch, and what happens between now and then will tell the industry whether its federal licence actually protects it or whether the CFTC stamp on the door is a legal theory awaiting final adjudication.
