Kalshi has suffered another legal setback in its fight with states seeking to regulate prediction-market contracts as gambling. The US Court of Appeals for the Second Circuit upheld lower-court rulings involving New York and Connecticut, finding that Kalshi had not shown it was likely to succeed on the merits or that it was entitled to an injunction while its appeal continued.
Plaintiffs seeking a preliminary injunction must show that they are likely to succeed on the merits of their case. The judge ruled that Kalshi had failed to meet that standard, and the Second Circuit considered the company’s defeats in New York and Connecticut together.
“Appellants have failed to produce the evidence necessary to demonstrate the validity of the injunction pending appeal,” a three-judge panel said in its ruling on Tuesday. The court also declined to overturn Coinbase’s loss to Connecticut, even though the lawsuits raised similar legal issues.
Kalshi lost another significant case in September, when an appeals court ruled that Ohio and Tennessee could enforce their gambling laws against prediction markets. A three-judge panel of the US Court of Appeals for the Sixth Circuit unanimously ruled against Kalshi.
The Trump administration is backing Kalshi
The Trump administration is also pursuing lawsuits against states seeking to enforce gambling laws against prediction markets. The Commodity Futures Trading Commission sued Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, Utah, and Wisconsin, claiming that it has exclusive authority to regulate platforms such as Kalshi and Polymarket.
Kalshi’s biggest victory came in April in the Third Circuit, where the Court of Appeals ruled that New Jersey could not regulate sports betting on prediction markets. The court held that Kalshi’s contract met the federal definition of a swap. Under US law, a swap is an agreement in which payment is “dependent on the occurrence, or the extent to which, of an event or contingency that relates to a potential financial, economic, or commercial outcome.”
“Kalshi’s sports-related event contract is a swap traded on a CFTC-approved DCM” (designated contract market). “Therefore, the CFTC has exclusive jurisdiction,” the Third Circuit judges wrote.
Other courts that have ruled in Kalshi’s cases, however, have found that at least some prediction-market bets are not swaps and that US law allows both state and federal governments to regulate prediction markets. New Jersey asked the Supreme Court to reverse the Third Circuit’s ruling, and 39 other states and the District of Columbia filed an appeal. An amicus filing supports New Jersey’s petition.
Source: arstechnica.com
