The Trump administration is trying to stop Utah from enforcing its gambling ban against Kalshi, making Utah the 10th state sued by the US government agency that regulates prediction markets.
Meanwhile, Utah Attorney General Derek Brown filed criminal charges in a state court against Kalshi and its founders on Wednesday. The attorney general’s office provided us with court filings listing charges against KalshiEX, LLC, Kalshi co-founder and CEO Tarek Mansour, and Kalshi co-founder and COO Luana Lopes Lara.
The company and two co-founders each face 13 felony charges and one misdemeanor for violating gambling laws. The charges are based on sports bets offered on Kalshi between September 13 and September 24. “The state did not issue arrest warrants for Monsour and Lopes Lara. Instead, they have been issued summons to respond to the charges in Third District Court in Salt Lake County,” The Salt Lake Tribune wrote.
The Utah News Dispatch quoted a Kalshi statement vowing to fight the charges. “This is a crazy overreach; Utah is clearly playing politics. We look forward to putting a stop to this in court, just like we did in Arizona,” the statement said, referring to similar charges the company beat in Arizona in May.
Utah, which prohibits gambling, filed a civil lawsuit against Kalshi in a state court last week. Utah’s lawsuit seeks an order prohibiting Kalshi from offering bets on sports, elections, politics, and other events.
“Kalshi runs an online casino in Utah and calls it a prediction market. That violates Utah law,” Utah Attorney General Derek Brown, a Republican, said last week. “Not only do our state laws ban gambling but Utah is one of only two states where gambling is also prohibited under the state constitution. For 130 years, Utah has been clear: gambling has no place here, and we will enforce our laws.”
Utah already defeated Kalshi in federal court after the prediction market filed a preemptive lawsuit that sought to prevent the state from enforcing its gambling laws. Now that Utah is moving ahead in its attempt to shut down Kalshi, it must defend against a lawsuit filed by the US Commodity Futures Trading Commission (CFTC).
Trump admin claims sole authority
The CFTC “has filed a lawsuit against Utah to block the state’s efforts to shut down CFTC-registered contract markets using state laws,” the commission said on Tuesday. “The lawsuit follows Utah’s decision to file civil enforcement actions in state court against CFTC-regulated markets and other businesses. Utah’s effort to restrict the functioning of CFTC-registered exchanges obstructs Congress’s decision to federally preempt state law.”
If Utah can shut down Kalshi, that could spell trouble for Kalshi’s chief prediction-market rival, Polymarket, and for sports betting sites like DraftKings and FanDuel. DraftKings and FanDuel advertise availability in all US states via a mix of products, including prediction-market platforms in states like Utah. Both are registered with the CFTC.
The Utah attorney general’s office declined to comment today on the CFTC lawsuit. The CFTC previously filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. The federal agency also filed briefs supporting Kalshi in appeals court cases.
“Utah seeks to shut down prediction markets across a wide variety of markets,” CFTC Chairman Michael Selig said. “Event contracts do not just serve hedging and investment purposes—they also provide the public with information about the outcome of future events. Congress entrusted the CFTC to be the federal regulator with sole responsibility to oversee these markets. As I’ve said before, the CFTC has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll do.”
The US Commodity Exchange Act (CEA) gives the CFTC authority to regulate swaps. The key legal questions being grappled with by courts throughout the US are whether event contracts offered by prediction markets qualify as swaps, and whether the CFTC jurisdiction over swaps preempts states from applying their gambling laws.
US sues in same court where Utah beat Kalshi
The CFTC is suing Utah in the same US district court that previously ruled in Utah’s favor. Kalshi sued Utah in February in an attempt to stop the state from bringing an enforcement action against the prediction market.
In August, US District Judge Robert Shelby granted Utah’s motion for summary judgment and denied Kalshi’s motion for a preliminary injunction. Shelby wrote, “[T]he court concludes the federal law relied upon by Kalshi does not preempt Utah’s ability to enforce its anti-gambling laws.”
Shelby determined the text of US law makes it clear that state regulation is not forbidden. US law states that CFTC jurisdiction does not “supersede or limit the jurisdiction conferred on courts of the United States or any State,” and “explicitly provides for State regulation of its gaming laws in all but a few specified cases,” he wrote.
“Congress is aware that some States permit gambling while others do not, and the CEA explicitly provides for State jurisdiction,” Shelby wrote.
Most states in US want Supreme Court to rule
Kalshi is now appealing its loss to the US Court of Appeals for the Tenth Circuit but was unable to obtain an injunction preventing enforcement of the state gambling ban while that litigation continues. On September 8, Tenth Circuit judges denied Kalshi’s emergency motion for an injunction pending appeal. Utah filed its lawsuit seeking a shutdown of Kalshi about six weeks later.
The CFTC lawsuit against Utah makes arguments similar to the ones already rejected by the district court, although some other courts have ruled otherwise.
“Utah is not the first State that has attempted to invade the Commission’s exclusive jurisdiction over swaps,” the CFTC lawsuit said. “Already, several federal courts—including the Third Circuit—have swiftly responded by issuing or affirming temporary restraining orders and preliminary injunctions barring the States from enforcing their gambling laws against CFTC-regulated exchanges that offer sports-related or other event contracts.”
The Third Circuit appeals court ruled that New Jersey cannot regulate sports bets on prediction markets. But Kalshi lost similar cases in the Sixth Circuit and Ninth Circuit in rulings that went in favor of Ohio, Tennessee, and Nevada.
Because circuit appeals courts are divided on the issue, it is likely that the Supreme Court will take up the case and determine whether states can apply their gambling laws to prediction markets. New Jersey petitioned the Supreme Court to resolve the circuit split, and 39 other states and the District of Columbia filed a brief supporting New Jersey’s petition.
This article was originally published on October 28 at 3:30 pm ET and updated on October 29 with information about the felony charges filed against Kalshi and its co-founders.
