Kalshi is not having a very good week. On Tuesday, the attorney general of Arizona filed a twenty-count criminal complaint against the online prediction market, accusing it of running an illegal gambling business in the state. Now, another southwestern state has taken a big swing at the company. A judge in Nevada has temporarily banned the service from operating there as part of an ongoing court case brought by state regulators.
Nevada, on behalf of its Gaming Control Board, sued Kalshi in February in an effort to block the prediction site from operating in the state. Officials maintain that Kalshi has failed to acquire the appropriate state gaming licenses that would cover the kind of betting activity its users are engaged in. They also argue that by allowing users under the age of twenty-one to use its services, it violates state law.
Earlier this month, the state requested a temporary restraining order against Kalshi as part of its ongoing case. In a state court on Friday, Judge Jason D. Woodbury granted the state’s request and scheduled a hearing on the restraining order for early next month. In his order, Woodbury wrote that Kalshi was not licensed under the Nevada Gaming Control Act. He noted that, given Kalshi’s policy of taking a commission from contracts purchased through its system, it was clearly operating what the state defines as a gambling percentage game.
Kalshi has argued that, due to its registration with the Commodity Futures Trading Commission, it is under that federal agency’s exclusive regulatory domain, which should exempt it from state laws. However, Woodbury noted that the issue of whether federal law overrides state law is still unsettled for now, and that the courts have not been leaning in that direction. Kalshi declined to comment on the development. Reuters reports that Nevada had previously convinced judges to ban Kalshi competitors like Coinbase and Polymarket.
The Nevada case is but one in a growing number of state cases across the country that seek to argue that sites like Kalshi and Polymarket are illegal operations that skirt state gambling laws.
Conversely, current federal officials have positioned themselves as protectors of the prediction industry. Following Arizona’s decision to file criminal charges against Kalshi earlier this week, the CFTC’s chairman, Mike Selig, came out swinging against the decision. He posted online that the charges represent a jurisdictional dispute and are entirely inappropriate as a criminal prosecution, adding that the CFTC is watching closely and evaluating its options.
The increasingly hostile posture of state officials and the lenience of the CFTC have all but guaranteed a regulatory battle between states and the federal government over prediction markets and their future.