A federal complaint lodged Monday argues that Utah’s effort to block Kalshi, a CFTC‑regulated prediction market, oversteps the state’s legal reach.
Key points
- The federal government argues that Utah’s anti‑gambling statutes are preempted by the Commodity Exchange Act and CFTC jurisdiction.
- Utah’s attorney general has simultaneously pursued criminal charges against Kalshi and its executives for alleged online gambling promotion.
- Courts have previously blocked state attempts to regulate CFTC‑approved swaps, and the current lawsuit seeks similar relief for Kalshi.
The U.S. Department of Justice and the Commodity Futures Trading Commission (CFTC) filed a complaint on Monday asserting that Utah does not have the power to prohibit derivatives markets that fall under federal regulation, specifically targeting the online platform Kalshi.
Earlier this week, Utah Attorney General Derek Brown filed a civil suit in the 3rd District Court, contending that Kalshi’s “event contracts” amount to illegal gambling and seeking an injunction to halt the platform’s operations in the state as well as monetary damages for alleged harm to residents.
Federal vs. State Authority
Kalshi describes itself as a prediction market that operates through a federally regulated exchange overseen by the CFTC; under the Commodity Exchange Act, the contracts it offers are classified as swaps, which the federal complaint says are not gambling.
The federal filing emphasizes that the CFTC holds exclusive jurisdiction over designated contract markets, a framework Congress created to preempt conflicting state gambling statutes, and notes that courts have previously issued restraining orders against similar state actions in Arizona, New York, and other jurisdictions.
Criminal Charges Filed by Utah AG
In a separate move, the Utah AG’s office filed criminal information charging KalshiEx, LLC and its co‑founders Tarek Mansour and Luana Lopes Lara with a second‑degree felony for a pattern of unlawful activity, twelve third‑degree felonies for online gambling promotion, and a class A misdemeanor, citing an undercover investigation that allegedly allowed a state‑resident agent to place wagers on twelve sports events.
The federal complaint asks the court to dismiss the state’s civil suit, reaffirm the CFTC’s exclusive authority over the market, and declare that Utah’s anti‑gambling laws do not apply to federally regulated swaps and prediction contracts.
Broader Implications for Other States
Utah joins a growing list of states that the federal government has challenged for attempting to regulate CFTC‑approved markets, a pattern the complaint says undermines the nationwide regulatory scheme designed to keep commodity derivatives markets uniform.
Reader questions
What is Kalshi and how is it regulated?
Kalshi operates as a prediction market that offers event‑based contracts classified as swaps under the Commodity Exchange Act, and it is overseen by the Commodity Futures Trading Commission.
Why is the federal government suing Utah?
The federal complaint claims Utah lacks authority to ban or restrict CFTC‑regulated markets, arguing that the state’s anti‑gambling laws conflict with the exclusive federal regulatory scheme for commodity derivatives.
What criminal charges has Utah filed against Kalshi?
Utah’s attorney general has charged KalshiEx, LLC with a second‑degree felony for a pattern of unlawful activity, twelve third‑degree felonies for online gambling promotion, and a class A misdemeanor for general gambling promotion.
Source: ksl.com
