Connecticut regulators’ enforcement action against prediction market operator Kalshi has been halted by a federal judge. As the company’s legal battles in the United States continue, the respite provides a limited window of safety.
Earlier in December, Kalshi, Robinhood, and Crypto.com received letters from Connecticut’s Department of Consumer Protection (DCP) accusing them of permitting residents of the state to engage in what the DCP called unlicensed online gambling. Offering sports-related contracts through these sites, according to regulators, essentially amounts to sports betting, which needs state approval.
The following day, Kalshi retaliated by filing a lawsuit in federal court. The business maintains that the Commodity Futures Trading Commission (CFTC), not state gaming authorities, has complete jurisdiction over the markets it lists. Kalshi claims that since its contracts are regarded as federally controlled derivatives, the state lacks the authority to independently monitor them.
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The crucial question at hand is whether Connecticut’s gambling regulations can be enforced in this situation or if federal commodities law will take precedence. U.S. District Judge Vernon Oliver has directed the DCP to stop enforcing its cease-and-desist order until that issue is settled.
Kalshi’s response is due on January 30, and the state must file its response by January 9, according to the judge’s instructions. The first significant indication of the court’s stance on the conflicting claims of federal preemption vs. state power is anticipated to come from a hearing set for February 12.
Massachusetts makes its own argument against markets connected to sports.
There are other states that are pushing the subject besides Connecticut. Massachusetts filed a separate lawsuit, requesting that a state court prevent Kalshi from allowing locals to exchange contracts based on the results of athletic events. For the first time, a state is requesting a court order that directly targets Kalshi’s sports-related items.
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