Kalshi challenges Arizona regulators, seeks injunction over prediction market crackdown
Kalshi is asking a federal judge in Arizona for permission to submit an unusually long legal motion as it seeks a preliminary injunction as part of emergency relief in a growing dispute with state regulators.
The derivatives trading platform filed the request Friday (March 13) in the U.S. District Court for the District of Arizona. The company says it intends to request both a temporary restraining order and a preliminary injunction aimed at blocking enforcement actions by the Arizona Department of Gaming and other state officials.
Kalshi argues that Arizona regulators are stepping into federal territory: “The Motion requests that the Court temporarily restrain and preliminarily enjoin the State of Arizona’s intrusion into the federal government’s exclusive authority to regulate derivatives trading on exchanges overseen by the Commodity Futures Trading Commission (“CFTC”).”
Under the court’s local rules, most motions are limited to 17 pages. Kalshi asked the judge to allow a 30-page filing instead, saying the extra space is necessary to fully explain the regulatory structure governing derivatives markets and the legal arguments behind its request for emergency relief.
The lawsuit names Arizona Department of Gaming Director Jackie Johnson, the agency’s chief law enforcement officer Douglas Jensen, the Arizona Department of Gaming itself, and Arizona Attorney General Kristin K. Mayes as defendants. Court records show the complaint was filed March 12.
Kalshi runs a federally regulated exchange offering event contracts, a type of derivatives product whose value depends on the outcome of specific events. The contracts can cover topics ranging from economic indicators to elections and sports outcomes.
Arizona regulators recently moved to crack down on those markets. The state’s Department of Gaming sent Kalshi a cease-and-desist letter alleging the company was offering event-based wagering without a license. Officials also warned other operators that prediction market products tied to sporting events could violate Arizona gaming law.
The pressure has already affected the market. Crypto.com, which had offered sports-related prediction contracts through its own platform, pulled those products in Arizona after receiving warnings from regulators.
“The Motion involves a detailed analysis of the complex issues in this case, including derivatives markets and event contracts, the history of the CFTC’s exclusive jurisdiction to oversee and regulate derivative markets like Kalshi, and the federal regulatory framework governing entities that offer event contracts on a Designated Contract Market—like Kalshi.”
Because of federal authority, the company argues, states cannot apply their own gambling or gaming laws to those contracts. Kalshi plans to walk the court through how derivatives markets function, how event contracts fit into that system, and how federally designated exchanges operate under CFTC oversight.
The planned motion will also outline Kalshi’s registration with the federal regulator and explain the broader legal framework governing designated contract markets.
Kalshi told the court it will likely cite earlier federal court decisions involving similar disputes with other states where the company sought preliminary injunctions over attempts to regulate its contracts. This may include Tennessee, where a federal judge in Nashville stepped in last month to stop regulators from going after the prediction market.
The company said it has already contacted representatives of the Arizona defendants to discuss the situation. If those discussions fail to resolve the conflict, Kalshi indicated it may quickly file the emergency motion.
In its filing, the company argued that it could face “irreparable harm” by disrupting contracts and relationships with users. Kalshi also contends the state’s actions interfere with what it says is the federal government’s exclusive regulatory authority under the U.S. Constitution’s Supremacy Clause.
Because those issues involve overlapping financial regulation and constitutional law, Kalshi told the court the standard page limit would not give it enough room to fully present the case.
Featured image: Kalshi / Canva
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