Arizona has initiated criminal proceedings against Kalshi, marking a significant moment as it becomes the first state to take such action against a prediction market platform. The state accuses Kalshi of operating an unlawful gambling enterprise and taking bets on elections in Arizona, prompting a federal judge to question his jurisdiction over the matter.
Arizona Attorney General Mayes stated, “Kalshi may present itself as a ‘prediction market,’ but in reality, it is conducting illegal gambling activities and accepting bets on Arizona elections, both of which are against state law. No company has the right to choose which laws to adhere to.”
The criminal charges consist of 20 counts, alleging that Kalshi accepted wagers from Arizona residents on various events, including professional and collegiate sports competitions and individual player performance. Additionally, the charges include four counts related to election betting, covering the upcoming presidential race in 2028, the Arizona gubernatorial race in 2026, the Republican primary for governor in Arizona in 2026, and the Secretary of State race in the same year.
By pursuing criminal charges, Arizona aims to impose penalties on Kalshi, which could range from fines between $10,000 and $20,000 per count, asset forfeiture, and court orders to cease the alleged illegal activities. Criminal cases also grant prosecutors broader investigative powers, enabling them to subpoena company records and compel testimony from executives or employees.
Just days prior to the criminal charges, Kalshi had filed a lawsuit against Arizona state officials, including Attorney General Mayes, in federal court. This lawsuit argues that the Commodity Exchange Act supersedes state gambling laws and that the Commodity Futures Trading Commission (CFTC) holds exclusive jurisdiction over event contracts on designated markets.
Kalshi contends that Arizona's actions represent an unwarranted intrusion into the federal government's authority to regulate derivatives trading and improperly classify its contracts as illegal gambling. This lawsuit followed a cease-and-desist order issued by Arizona in May 2025, warning licensed sportsbooks against participating in prediction markets.
On the same day that Arizona filed its criminal charges, U.S. District Judge Michael T. Liburdi denied Kalshi’s request for a temporary restraining order while leaving the motion for a preliminary injunction pending. The judge has asked Kalshi to explain by March 20 why the court should not abstain from the case entirely, given the ongoing criminal proceedings in state court.
The judge's decision is rooted in the Younger abstention doctrine, which suggests that federal courts should generally refrain from interfering with active state criminal proceedings, respecting state sovereignty and promoting cooperation between state and federal courts. Arizona's response is due by March 27, with Kalshi's reply expected by April 1.