Arizona Temporarily Stands Down on Kalshi Prosecution as Federal Ruling Blocks Monday Arraignment

Key Takeaways:

• A federal judge blocked Kalshi’s Monday arraignment in Arizona, ruling the CFTC is likely to succeed on federal preemption.
• Arizona filed the first criminal charges against a prediction market operator, with 20 counts, including election and sports wagering.
• Federal courts are split, with the Third Circuit backing CFTC jurisdiction while Nevada and Massachusetts side with the states.

Federal Government Succeeds Where Kalshi Itself Failed

The arraignment of Kalshi in Maricopa County Superior Court had been scheduled for Monday. U.S. District Judge Michael Liburdi issued the temporary restraining order (TRO for short) on Friday following a nearly two-hour hearing in Phoenix.

He found that the CFTC had made “a clear showing that it is likely to succeed on the merits of its claim that Arizona’s gambling laws are preempted by the Commodity Exchange Act.” The Arizona Attorney General’s Office said it would inform the court on Monday that it will not proceed with the arraignment while the order stands. The TRO remains in effect through April 24.

The ruling came two days after Liburdi denied Kalshi’s own motion for a preliminary injunction against Arizona. In that earlier decision, the judge said it was premature to rule on whether the federal Commodity Exchange Act overrides Arizona’s gambling laws – the central legal question in the case – citing the Anti-Injunction Act, which generally bars federal courts from blocking state criminal proceedings. The CFTC’s separate motion succeeded on different grounds, arguing that Arizona’s prosecution directly interfered with the agency’s exclusive federal authority over swaps traded on designated contract markets, triggering the Supremacy Clause.

The CFTC’s separate motion, backed by the Department of Justice, succeeded by arguing that Arizona’s prosecution directly interfered with the agency’s exclusive federal authority over swaps traded on designated contract markets.

Arizona Attorney General Kris Mayes filed 20 criminal misdemeanor counts against KalshiEx LLC and Kalshi Trading LLC on March 17, making it the first state to bring criminal charges against a prediction market operator. The charges allege that Kalshi accepted illegal wagers from Arizona residents on professional and college sports, individual player performance, and political outcomes. These include bets on the 2028 presidential race, the 2026 Arizona gubernatorial contest, and whether the SAVE Act would become law. Four counts of election wagering carry maximum penalties of $10,000 each, while 16 sports-related counts carry penalties of up to $20,000 each.

CFTC Chairman Michael Selig called Arizona’s prosecution a “dangerous precedent,” saying that the state’s “decision to weaponize preempted state criminal law against companies that comply with a comprehensive federal regime cannot stand.” He added that Congress had “specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation.”

Kalshi, which was approved by the CFTC in 2020 as the first federally designated exchange for event contracts in U.S. history, structures its products as regulated financial derivatives rather than traditional bets. Users buy and sell “yes” or “no” contracts tied to event outcomes, which the company classifies as swaps between counterparties rather than wagers placed against the house. Following a $300 million Series D funding round, Kalshi carries a reported $5 billion valuation and controls approximately 89% of the U.S. prediction market, according to a recent Bank of America report cited by Coindesk.

The Arizona case is part of a broader multi-state conflict. The CFTC filed lawsuits against Arizona, Connecticut, and Illinois on April 2, seeking declaratory judgments that the Commodity Exchange Act gives the agency exclusive authority over event contracts. Kalshi has separately sued Arizona, Utah, and Iowa to preempt state enforcement actions.

Federal courts have split sharply on the underlying question. The U.S. Court of Appeals for the Third Circuit ruled on April 6 that federal law preempts state gambling statutes in a case involving New Jersey’s attempt to enforce its laws against Kalshi – a significant win for the CFTC’s position. Federal judges in Tennessee have also ruled in Kalshi’s favor. State and federal judges in Nevada and Massachusetts have issued early rulings supporting states’ authority to restrict prediction market operators.

Monthly trading volumes across prediction platforms have climbed past $20 billion, up from $1.2 billion in early 2025. A federal victory would allow platforms like Kalshi to scale nationally under a single regulatory framework. A state victory could fragment the market into a jurisdiction-by-jurisdiction model resembling the current U.S. sports betting landscape.

The next step in the Arizona case is a hearing to determine whether the temporary restraining order should be converted into a preliminary injunction that would block the state prosecution for a longer period.