The U.S. Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) have jointly asked a federal court to block the state of Arizona from enforcing its gambling laws against the prediction market platform Kalshi. The federal agencies filed their argument late Tuesday, urging the court to halt Arizona's actions, which include criminal charges against KalshiEx LLC and Kalshi Trading LLC.
The core legal dispute centers on whether Kalshi's sports and event outcome contracts are illegal gambling wagers or federally regulated financial derivatives. The DOJ and CFTC argue that these contracts qualify as "swaps" under the Commodity Exchange Act, placing them under the CFTC's "exclusive jurisdiction." They contend that federal law governs these products regardless of whether they track sports, elections, or other future events, and that Arizona cannot treat them as illegal gambling.
The federal filing emphasizes that the contract's structure, not its subject matter, determines its legal treatment. "Economic consequences can arise from many future events, including sports outcomes," the government stated, warning that allowing states to regulate these contracts would create "a patchwork of 50 state regulations" and disrupt the national market Congress intended to place under federal supervision.
Arizona has taken an aggressive stance, filing criminal charges against Kalshi under state betting laws. State Attorney General Kris Mayes accused the firms of running an "illegal gambling business in Arizona without a license" and offering unlawful election wagering. An arraignment in the case is scheduled for April 13. Arizona argues the contracts function like traditional sports bets and should be subject to state licensing, age, and consumer protection rules.
Kalshi CEO Tarek Mansour has rejected the charges, calling them a "total overstep" and asserting the issue is "not about gambling." The company maintains that federal law allows its exchange to list these contracts and states cannot override federal oversight.
This case is part of a broader, fragmented legal battle over prediction markets in the U.S. Court rulings have been mixed: a federal appeals court in New Jersey recently sided with Kalshi, finding its sports contracts presumptively lawful under federal law. Conversely, courts in Nevada, Ohio, and Maryland have allowed state enforcement to proceed, with a Nevada judge stating that buying a contract on a baseball game is no different from placing a traditional bet. A Tennessee federal judge sided with Kalshi earlier this year.
The CFTC has also filed lawsuits against regulators in Illinois and Connecticut, asserting its exclusive control over federally registered trading platforms. The outcome of the Arizona case could set a significant precedent, determining whether prediction markets operate under a single federal framework or are forced into state gambling systems, potentially limiting their access in many regions.
Market activity adds urgency to the regulatory clash. Monthly trading volumes across prediction platforms have surged past $20 billion, up from $1.2 billion earlier in 2025, according to TRM Labs. This growth has raised concerns, including instances of alleged insider trading, such as a case where six Polymarket traders reportedly made $1 million by correctly predicting the timing of U.S. military action against Iran.
