Kalshi is not having a very good week. On Tuesday, Arizona’s attorney general filed a 20-count criminal complaint against the online prediction market, accusing it of running an illegal gambling business. Now, another southwestern state has given the company a big shakeup: 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 the Gaming Control Commission, sued Kalshi in February in an attempt to block the operation of the prediction site. Officials argue that Kalshi failed to obtain the proper gaming licenses that would cover the type of gambling activity its users engage in and that by allowing users under the age of 21 to use its services, it violates state law.
Earlier this month, the state sought a temporary restraining order against Kalshi as part of its ongoing case. In state court Friday, Judge Jason D. Woodbury granted the state’s request and set a hearing on the restraining order for early next month, according to court documents.
In his order, Woodbury wrote that Kalshi was not licensed under the Nevada Gaming Control Act and that, given Kalshi’s policy of taking a commission on contracts it bought through its system, it was clearly operating a “percentage game” (which the state defines as gambling).
Kalshi argued that because of its registration with the Commodity Futures Trading Commission, it is under the exclusive regulatory purview of that federal agency, which should exempt it from state laws, according to court documents. However, Woodbury noted that the question of whether federal law trumps state law is still unresolved for now, but the courts have not leaned that way.
Kalshi declined to comment on the development when reached by TechCrunch. Wired reported for the first time for the judge’s decision. Reuters states that Nevada previously convinced judges to ban Kalshi competitors like Coinbase and Polymarket.
The Nevada case involving the prediction market is just one in a growing number of state cases across the country seeking to argue that sites like Kalshi and Polymarket are illegal operations that violate state gambling laws.
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Instead, current federal officials have positioned themselves as protectors of the forecasting industry. Case in point: Following Arizona’s decision to file criminal charges against Kalshi earlier this week, CFTC Chairman Mike Selig spoke out against the decision, posting on the internet: “The Arizona Attorney General today filed criminal charges against one of our listed exchanges related to prediction markets. This is a litigation and completely inappropriate as a criminal prosecution. @CFTC closely monitors it and evaluates its options.”
The increasingly hostile attitude of state officials and the leniency of the CFTC have guaranteed a regulatory battle between the states and the federal government over the futures of the prediction markets.
