The legal tug of war over prediction markets continued in Arizona on Wednesday, after a federal judge denied Kalshi’s bid to block a state criminal case, allowing the prosecution to move forward even as federal regulators escalate their own efforts to shut it down.
Wednesday’s ruling comes after Arizona became the first state to bring criminal charges against a Commodity Futures Trading Commission (CFTC)-regulated prediction market operator, pushing the closely watched jurisdictional fight over these exchanges into new legal territory.
In an April 8 order, U.S. District Judge Michael Liburdi rejected Kalshi’s request for a preliminary injunction, finding that the Anti-Injunction Act bars a federal court from halting an ongoing state criminal proceeding.
Because the United States entered the dispute and argued that Arizona’s enforcement is preempted by federal law, the court said it wouldn’t step aside under the Younger doctrine, a legal principle that generally requires federal courts to avoid interfering in ongoing state criminal cases.
As Liburdi explained, “The presence of the federal sovereign is determinative in that it forecloses Younger abstention.”
That leaves Kalshi facing criminal charges in Arizona, at least for now, as the United States and the CFTC mount a parallel push to stop the state from pursuing the case at all.
Judge Denies Kalshi Relief Under Anti-Injunction Act
In his order, Liburdi noted that “technology often sprints faster than the law can keep pace” and that this case forced the court to address “threshold issues concerning the limits of federal judicial power.”
The biggest roadblock was the Anti-Injunction Act, which he described as “an absolute prohibition against any injunction of any state-court proceedings.”
According to the court’s findings, the act applies “so long as state proceedings are pending” at the time the federal court considers the request, effectively shutting down Kalshi’s attempt to pause Arizona’s case.
Because Arizona had already filed a 20-count criminal charge against Kalshi, triggering the Anti-Injunction Act, the judge found he was “barred by statute from issuing the injunction.”
In a post on X, sports betting and gaming lawyer Daniel Wallach said the ruling could change how states approach enforcement actions against prediction markets.
“State court enforcement actions now offer the additional benefit of barring Kalshi from seeking preliminary injunctive relief vs. states in federal court,” he wrote, noting that the decision could lead more states to pursue litigation instead of issuing cease-and-desist orders.
Wallach also pointed out that states have gone undefeated against Kalshi in state court, with a 4-0 record. At the same time, he said if states pursue Arizona’s strategy, the CFTC will file more lawsuits against states.
As it stands, by filing criminal charges against Kalshi, Arizona may have found an effective way to keep these cases in state court, even if that strategy increases the odds of federal regulators intervening.
In doing so, Arizona may have also handed other states a more effective procedural playbook for going after prediction markets.
CFTC Moves to Block Arizona Enforcement in Parallel Filing
The same day that Kalshi’s request was denied, the United States and CFTC filed their own motion for a temporary restraining order and preliminary injunction, arguing that Arizona had overstepped its authority.
In the filing, they claim that the state is “unconstitutionally intruding on the CFTC’s exclusive regulatory jurisdiction” over derivatives markets.
The federal government warned that allowing them to do so would result in “subjecting those markets to a patchwork of 50 state regulations is precisely what Congress sought to avoid.”
The motion also cites the Third Circuit’s April 6 ruling in KalshiEx, LLC v. Flaherty out of New Jersey, quoting its conclusion that “Because Kalshi’s sports-related event contracts are traded on a CFTC-licensed DCM and depend on event outcomes associated with economic consequences, they fit within the Act’s definition of ‘swaps’ subject to the CFTC’s jurisdiction.”
At least for now, the Arizona case will continue, but the federal government’s intervention sets up a direct confrontation over whether states can treat prediction markets as gambling or whether they fall solely under federal derivatives law.
