CFTC Orders Kalshi to Stay Open Amid State Crackdown on Prediction Markets

Headline: CFTC orders Kalshi to stay open as state courts try to curb event-based markets The CFTC on Aug. 11 invoked emergency authority to order prediction-market operator Kalshi to keep operating under federal designated-contract-market rules, escalating a legal confrontation over whether states can block event-based contracts offered on CFTC-registered exchanges. Why the CFTC stepped in - Kalshi notified the regulator that a looming New York temporary restraining order — filed by NY Attorney General Letitia James on July 31 — would create a “market emergency” by potentially stopping Kalshi’s event contracts nationwide. New York is seeking more than $36 billion in restitution, disgorgement and penalties, and alleges Kalshi runs unlicensed gambling products and allowed underage trading. - The CFTC’s emergency directive requires Kalshi to continue operating in accordance with the Commodity Exchange Act’s Core Principles. The agency also submitted the order as supplemental authority to U.S. District Judge Lorna Schofield in the Southern District of New York, where the federal government is challenging New York’s enforcement posture. State actions and conflicting rulings - Washington and New York have sued Kalshi arguing that many event contracts are unlawful gambling under state law. Washington’s case (filed by AG Nick Brown in March) led King County Superior Court Judge John McHale to issue a preliminary injunction restricting seven categories of contracts — sports, elections, politics, entertainment, culture, technology, and science — and barring related advertising to Washington residents. - The Washington order requires Kalshi to implement an initial IP-and-declared-residency block by Aug. 19 and a more robust multi-source geofencing system by Sept. 2. Reports say failure to meet the Sept. 2 deadline could trigger a penalty up to $120,000 per day (subject to court discretion and any affidavit Kalshi files to explain a delay). - The Washington injunction left other contract types untouched (commodities, climate, economics and finance) and Kalshi’s request to stay the injunction pending appeal was denied. Federal split and circuit results - Courts across the U.S. have reached mixed outcomes: some states including Massachusetts, Michigan, Nevada, New York and Washington have secured rulings allowing at least partial state restrictions, while other federal courts have blocked state enforcement in some jurisdictions. - In Minnesota, a federal judge (Katherine Menendez) temporarily blocked the state ban before Aug. 1, protecting CFTC-registered designated contract markets like Kalshi and Polymarket US while litigation proceeds. The Third Circuit in April produced a decision favorable to federal preemption in a New Jersey matter, but results are inconsistent elsewhere. - In July, U.S. District Judge Analisa Torres rejected Kalshi’s bid to stop New York from enforcing its laws against sports-related contracts, finding Kalshi had not proven federal law displaced the state’s authority. Positions and legal maneuvering - Kalshi insists its CFTC registration places it under exclusive federal jurisdiction and disputes the characterization of its contracts as gambling. It has asked the Southern District of New York to pause proceedings pending a Second Circuit appeal; defendants reportedly did not oppose delaying discovery while that motion is unresolved. - Sports-betting attorney Daniel Wallach noted the CFTC action effectively pressures Kalshi to continue operating despite state-court orders, while the CFTC framed its move as enforcing federal law governing designated contract markets. - Washington AG Nick Brown criticized Kalshi for profiting from wagers on sports, elections, natural disasters and international events and says the state will continue enforcement. New York AG Letitia James and Gov. Kathy Hochul are pursuing large monetary remedies. Oversight, advertising and related probes - The CFTC has warned regulated platforms against displaying contracts using American-style betting odds and reminded operators their advertising and solicitation must comply with derivatives law. - The New York City Council has opened an inquiry into allegedly deceptive advertising by Coinbase, Kalshi, Polymarket and Gemini, with particular attention to how prediction-market products are promoted to city residents. What to watch next - Key near-term dates include the Washington geofencing deadlines (Aug. 19 initial IP filter; Sept. 2 multi-source geofence) and ongoing appeals in federal courts that could clarify whether the Commodity Exchange Act preempts state gambling laws for CFTC-registered exchanges. - Outcomes in the SDNY fights (including the federal government’s filings supporting preemption) and appellate rulings will shape whether Kalshi and similar platforms can operate nationwide under federal oversight or face patchwork state controls. Bottom line: the clash between federal derivatives oversight and state gambling enforcement is intensifying. The CFTC’s emergency order keeps Kalshi trading for now, but a patchwork of court rulings and state injunctions means availability of specific event contracts will keep varying by jurisdiction as the legal battle unfolds.