CFTC Tells Kalshi to Ignore New York Court Order

The CFTC insists that only it can regulate prediction markets

The argument isn't new, but the action is certainly bold. By ordering Kalshi to continue offering sports-event contracts in New York State, the CFTC insists that it is only enforcing its federal authority in accordance with the Commodity Exchange Act’s core principles. However, the federal regulator is also telling one of the companies it oversees to potentially ignore a court ruling.

The New York lawsuit is seeking a court order stopping Kalshi from operating as an unlicensed gambling business in the state. Michael Selig, Chair of the CFTC, is adamant that neither New York nor the courts have the legal right to take this action against Kalshi.

“New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings,” Selig said in a statement. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws."

Selig derided New York lawmakers for seeking to override the CFTC's federal authority.

"New York has no business regulating these interstate financial markets," Selig said. "The Commission is required by law to ensure order in these markets, and that is what we have done.”

A financial watchdog group is criticizing the CFTC for abusing the legal process

Better Markets is a non-profit, non-partisan, and independent organization. It was founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets. The stated objective of this financial watchdog group is to help build a stronger, safer financial system for Americans. And they don't like the bullying approach that the CFTC is taking in this state vs federal prediction market battle.

“The CFTC believes that the law does not apply to it," Benjamin Schiffrin, Director of Securities Policy for Better Markets, said in a statement. "The CFTC has no right or authority to subvert the normal legal process.

"Kalshi has every opportunity to obtain relief from a court of law while its appeals are pending. If the courts deny relief pending appeal, however, it is not for the CFTC to substitute its judgement for the judgement of the courts."

Kalshi was also ordered to defy a court order in Michigan

This isn't the first time that the CFTC has given Kalshi instructions to circumvent a court order. In Michigan, Ingham County Circuit Judge Rosemarie Aquilina issued a temporary restraining order. It requires Kalshi to stop offering sports-event contracts to Michigan residents. The prediction market site was also instructed to implement state-compliant geolocation controls.

The CFTC advised Kalshi to ignore the court order and continue offering sports-event contracts in the state. Judge Aquilina ruled that if Kalshi does this, it will pay a daily fine of $120,00 for each day it defies her ruling.

Those fines are scheduled to begin on August 13.