This week, federal appeals courts have become increasingly pivotal in the ongoing disputes surrounding prediction markets, as Kalshi seeks relief from state enforcement actions. Meanwhile, Crypto.com has opted to wait for a ruling from the Ninth Circuit that could significantly influence the broader preemption debate.
In conjunction with these developments, Michael Selig, Chairman of the U.S. Commodity Futures Trading Commission (CFTC), utilized a meeting of the agency's Innovation Advisory Committee to present a new regulatory framework for prediction markets. This roadmap includes proposed rules focused on consumer protection, product governance, and market structure.
Here are the key updates from the prediction market landscape over the past week:
Ongoing Legal Challenges in Prediction Markets
Kalshi Faces Setback in Connecticut
Kalshi encountered another hurdle in its legal battle against Connecticut. U.S. Circuit Judge Sarah A. L. Merriam of the Second Circuit Court of Appeals rejected Kalshi's request for a temporary injunction while a three-judge panel reviews the case. Connecticut regulators must file a comprehensive opposition by this coming Monday.
The court's decision follows U.S. District Judge Vernon D. Oliver's earlier denial of both Kalshi's preliminary injunction request and a subsequent injunction pending appeal in Connecticut.
Kalshi Limits Market Access in Washington State
In Washington State, Kalshi has restricted access to various event contracts following a state court's injunction. Users were informed that, starting Thursday, they would no longer be able to engage in markets related to sports, elections, politics, culture, technology, science, and mentions.
These restrictions stem from a preliminary injunction mandating Kalshi to cease offering numerous event contracts in the Pacific Northwest. Kalshi has since filed a motion requesting the judge to reconsider the amended preliminary injunction or, alternatively, to reconsider the refusal to stay the order.
Crypto.com and Washington State Pause Legal Proceedings
In a related development, Crypto.com and Washington State officials have agreed to suspend their federal legal dispute while awaiting the outcome of related appeals in the Ninth Circuit. Both parties highlighted pending appeals concerning Crypto.com, Kalshi, and Robinhood in Nevada, which they argue present similar federal preemption issues.
Washington State will hold off on certain enforcement actions until at least one of these appeals is resolved, leading to an administrative stay of the lawsuit.
New York and CFTC Dispute Over Emergency Order
The ongoing conflict between New York and the CFTC intensified this week regarding the regulator's emergency order allowing Kalshi to continue operations despite potential court orders to cease. New York has requested to respond to this CFTC order, which the agency opposes, asserting that the federal district court is not the appropriate venue for New York to contest the validity of an agency order.
U.S. District Judge Lorna G. Schofield has granted New York permission to respond, establishing an August 31 deadline for submission.