A legal fight over whether states can apply their gambling laws to prediction markets is moving toward the US Supreme Court. The Commodity Futures Trading Commission (CFTC) argues that federal law gives it exclusive authority over event contracts, while Utah and other states contend that they can regulate or prohibit sports-related prediction markets under their gambling laws. Conflicting decisions from federal appeals courts have created a circuit split.
Federal law and state gambling authority
Judge Shelby wrote that the text of US law makes clear that state regulations are not preempted. The law states that the CFTC’s jurisdiction “is not intended to supersede or limit the jurisdiction vested in the courts of the United States or any other state” and “expressly provides for state regulation of gaming law in all but a few specific cases.”
“Congress recognizes that some states allow gambling while others do not, and the CEA expressly provides for state jurisdiction,” Shelby wrote.
States seek a Supreme Court ruling
Kalshi is appealing its loss to the US Court of Appeals for the 10th Circuit, but it has been unable to obtain an injunction preventing Utah from enforcing its gambling ban while the case proceeds. On September 8, a 10th Circuit judge rejected Kalshi’s emergency motion for an injunction pending appeal. About six weeks later, Utah filed a lawsuit seeking to shut down Kalshi.
The CFTC’s lawsuit against Utah makes claims similar to those that the district court rejected, although other courts have reached different conclusions.
“Utah is not the first state to attempt to violate the Commission’s exclusive jurisdiction over swaps,” the CFTC’s lawsuit says. “Already, several federal courts, including the Third Circuit, have responded quickly by issuing or affirming temporary restraining orders or preliminary injunctions prohibiting states from enforcing their gaming laws against CFTC-regulated exchanges that offer sports-related and other event contracts.”
The Third Circuit has ruled that New Jersey cannot regulate sports betting on prediction markets. Kalshi, however, lost similar cases in the Sixth and Ninth Circuits, which ruled in favor of Ohio, Tennessee, and Nevada.
The Supreme Court is likely to consider whether states can apply their gambling laws to prediction markets because the federal appeals courts are divided. New Jersey has asked the Supreme Court to resolve the conflict, and 39 other states plus the District of Columbia have filed an amicus brief supporting New Jersey’s petition.
Source: arstechnica.com
