This week has been challenging for Kalshi, as the company encountered significant hurdles in Connecticut and Washington while also dealing with new lawsuits and the filing of football contracts. The ongoing legal battles in New York have drawn considerable attention, particularly due to a notable intervention by the Commodity Futures Trading Commission (CFTC).
The CFTC's involvement escalated the situation for Kalshi in New York, issuing an emergency order that allows the exchange to maintain its operations even if a state order threatens to shut it down. Kalshi quickly referenced this order in its appeal to the Second Circuit, arguing it highlights a serious conflict between federal and state laws, which bolsters its request for an injunction while the appeal is pending.
In response, New York officials contended that the CFTC's order is not relevant to the appeal since Attorney General Letitia James is not a defendant in the case. They argued that the CFTC cannot create a federal-state conflict through its interpretation of the Commodity Exchange Act (CEA).
In a separate case, a federal judge denied Novig's request for a temporary restraining order against New York. Judge Colleen McMahon emphasized that she would not undermine a previous ruling by Judge Analisa Torres regarding Kalshi without a comprehensive briefing, while indicating that she had not yet made a decision on the merits of the case. Oral arguments for Novig's preliminary injunction are set for September 11.
New York City also initiated an investigation into several operators, including Polymarket, Kalshi, Coinbase, and Gemini Titan, focusing on their advertising practices, influencer marketing, and potential targeting of minors.
In Connecticut, Kalshi faced a significant legal defeat when U.S. District Judge Vernon D. Oliver rejected its request for a preliminary injunction against state regulators. The judge determined that Kalshi's sports event contracts do not qualify as swaps under the CEA and dismissed its argument for federal preemption, stating that, fundamentally, these contracts are simply sports wagers.
Meanwhile, in Washington, a court has mandated that Kalshi implement geofencing measures, prohibiting event contracts related to sports, elections, politics, entertainment, culture, technology, and science by September 2. This ruling is broader than those issued in Michigan and Nevada, which raises questions about potential further emergency orders from the CFTC.