Nevada opposes Kalshi’s bid to delay a rehearing by the U.S. Court of Appeals for the Ninth Circuit while the Commodity Futures Trading Commission (CFTC) proposes new rules for event contracts.
In a letter dated September 25, Kalshi contends that because the CFTC has stated that it intends to revise 17 CFR 40.11 “within the next two months,” the court should grant Kalshi’s petition for rehearing en banc or hold the petition until the CFTC publishes its revised rule.
Nicole Saharsky, an attorney with Mayer Brown who represents Nevada, said a delay won’t change the outcome because the court’s no-swaps ruling was based on “the text, context and purposes” of the Commodity Exchange Act (CEA).
“To start, the CFTC’s intent is nothing new,” Saharsky wrote in a filing with the court. “The court weas well aware that the CFTC planned to revise section 40.11 when it issued the decision.”
Saharsky reminded the court that the CFTC’s statement does no more than indicate when that revision might take place.
Last week, the CFTC submitted two proposed rules to the White House tied to prediction markets as the agency seeks to confirm its jurisdiction, despite adverse court rulings and pushback by states and tribes.
The CFTC filed two proposals with the White House Office of Information and Regulatory Affairs, a division within the Office of Management and Budget that reviews federal regulations before publication.
One proposed rule would further define a swap to include event contracts, while the second proposed rule would “exclude casino-style gambling products.”
“Further, revising Section 40.11 would not change the outcome here,” Saharsky wrote. “The court held that sports event contracts were not ‘swaps’ based on text, context and purposes of the (CEA). The court cited Section 40.11(a) only as one base for rejecting one of Kalshi’s arguments.”
Kalshi argued that a special rule showed Congress intended for the CFTC to regulate sports event contracts.
“Fundamentally, Kalshi’s argument is just another attempt at delay, so that Kalshi can continue its unlawful operations for as long as possible,” Saharsky wrote. “The weight of authority confirms that the court’s decision is correct and that there is no reason to wait to deny Kalshi’s petition.”
In August, the Ninth Circuit ruled 3-0 Kalshi cannot block Nevada gaming regulators from overseeing its prediction market platform, writing that the CEA likely does not preempt state gaming law.
In a separate ruling, the Ninth Circuit in Blue Lake Rancheria versus Kalshi ruled the CEA does not authorize sports betting on tribal land.
Last week, Kalshi lost an appeal after the U.S. Circuit Court for the Sixth Circuit ruled that Ohio and Tennessee can enforce their sports gambling laws against the platform, rejecting its argument that the CEA protects its sports event contracts and the contracts are regulated by the CFTC.
Meanwhile, a federal judge in Illinois on Friday granted in part requests by Kalshi, Coinbase and the CFTC for preliminary injunctions, finding that state gaming licensing regulations conflict with federal law governing sports event contracts.
The precise terms of the injunction still need to be drafted. The judge ordered the parties to submit a proposed injunction by October 29 and left challenges to the state’s wagering fees unresolved.
The Illinois Gaming Board believes sports-event contracts are illegal, untaxed gambling, while the state legislature recently imposed a 1.75% to 3.5% transaction tax on sports event contracts offered by prediction markets.
