The state of Arizona has initiated a criminal prosecution against Kalshi, accusing the company of operating an unlawful gambling enterprise.
The charges contain 20 criminal counts alleging that Kalshi unlawfully accepted bets on political contests, college sports and individual player performances, in violation of Arizona state law.
Arizona escalates with criminal charges
Arizona Attorney General Kris Mayes stated: “Kalshi may brand itself as a ‘prediction market,’ but what it’s actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law.” This marks the first criminal case of its kind targeting a prediction market at the state level.
The criminal filing empowers Arizona prosecutors to pursue fines, asset forfeiture and court directives aimed at halting Kalshi’s operations within the state. Furthermore, it grants broader authority to investigate company records and personnel.
The move follows Kalshi’s recent federal lawsuit asserting that the Commodity Exchange Act and the exclusive regulatory authority of the Commodity Futures Trading Commission (CFTC) supersede state gambling regulations.
Kalshi’s model under scrutiny as regulators debate jurisdiction
Founded in 2021, Kalshi has gained prominence offering contracts on a wide range of subjects, including sports, political events and economic indicators. Its business model has drawn regulatory scrutiny across various US states.
Cease-and-desist orders have been issued by several states and courts in Ohio, Nevada, Maryland and Massachusetts have offered differing verdicts on whether such contracts constitute illegal wagers or federally regulated financial instruments.
The CFTC has historically enforced regulations on designated contract markets and maintains it holds regulatory primacy over various event-based contracts. Nevertheless, the ambiguity surrounding prediction markets persists.
Federal judge weighs abstention as Kalshi legal battle deepens
US District Judge Michael T Liburdi declined Kalshi’s request for a temporary restraining order to halt Arizona’s criminal actions, according to CNBC. The judge ordered Kalshi to justify why the court should not abstain from involvement in light of the concurrent state criminal proceedings. Application of the Younger abstention doctrine would result in Kalshi’s case proceeding exclusively in state court, a development that could influence enforcement approaches nationally.
Judicial perspectives on the issue are divided. In February, a Tennessee federal judge recently upheld Kalshi’s arguments favouring CFTC preemption, while courts in Ohio and other jurisdictions have dismissed similar claims.
Original article: https://igamingbusiness.com/legal-compliance/arizona-criminal-charges-against-kalshi/
