The Commodity Futures Trading Commission (CFTC) filed a lawsuit Friday against Arkansas to block the state’s attempts to halt event-contract trading and impose up to hundreds of millions of dollars in civil penalties on CFTC-registered exchanges.
Arkansas is bringing a civil enforcement in state court against Kalshi, a CFTC-designated contract market. Arkansas’s efforts to obstruct the functions of CFTC-registered exchanges operating lawfully under the Commodity Exchange Act are preempted by federal law.
On November 4, Arkansas Attorney General Tim Griffin filed a lawsuit in the Circuit Court of Independence County against Kalshi to stop the company’s “illegal gambling operations in Arkansas.”
The lawsuit also seeks to recover money unlawfully obtained from Arkansas consumers, hold Kalshi accountable for its deceptive and unconscionable practices, impose civil penalties, and obtain all other relief under Arkansas law.
Griffin argued that Kalshi operates an illegal, unregulated, gambling platform in violation of the Arkansas Deceptive Trade Practices Act by letting state residents wager on events and sports without a state license, taxes, or age restrictions aligned with local gaming laws.
In the CFTC’s complaint, the agency argues the event contracts targeted by Griffin are “swaps” under the Commodity exchange Act (CEA) and the exchanges that offer these event contracts for trading, including Kalshi, are CFTC-regulated designated contract markets (DCMs).
The 34-page complaint also claims that the state’s efforts to prevent a CFTC-regulated DCM from offering CFTC-approved financial products intrude on the exclusive federal scheme Congress designed to oversee U.S. commodity derivatives markets.
“As prediction markets continue to prove their value in being useful for risk management and providing the public with valuable information about the future, Arkansas seeks to shut down event contracts ranging from sports and politics to other important world events,” Chairman Michael S. Selig said in a statement.
Selig stressed that the federal agency would continue to “defend its sole jurisdiction over these federally regulated markets as granted by Congress under the CEA, and the CFTC will not let state interference thwart its regulatory efforts and destroy federally regulated markets.”
As the CFTC has argued in other lawsuits, the agency claims the CEA gave them “discretionary authority to approve or disapprove certain event contracts based on whether they are, in the commission’s evaluation, contrary to the public interest.”
The CFTC noted that Arkansas is not the first state that has attempted to invade the commission’s exclusive jurisdiction over swaps.
Already, several federal courts, including the U.S. Court of Appeals for the Third District, “have swiftly responded by issuing or affirming temporary restraining orders and preliminary injunctions barring states from enforcing their gambling laws against CFTC-regulated exchanges that offer sports-related or other event contracts.”
Arkansas is the 11th state the CFTC has sued to vindicate federal sovereign interests. The CFTC has also submitted amicus briefs in four federal Courts of Appeal and one state Supreme Court.
