Third Circuit Tells New Jersey to HODL Off on Kalshi Ban

A Third Circuit Court of Appeals panel just slid into New Jersey's DMs with a legal L, blocking the state's attempt to temporarily ban prediction market platform Kalshi. In a 2-1 ruling, the court found that the federal Commodity Exchange Act preempts state gambling laws when it comes to regulating prediction markets. Sometimes the feds and the states just can't agree on who's the real sheriff in town.

The majority opinion, signed by Chief Judge Michael Chagares and Circuit Judge David Porter, determined that Kalshi's sports-related event contracts are presumptively approved under federal law because the CFTC has not found them contrary to the public interest and has not brought any enforcement actions against them. The CFTC basically gave these contracts a polite nod and a "meh, not my problem" energy, which was apparently enough for the court.

New Jersey had argued that Kalshi's event contracts aren't 'swaps' covered by the Act because the outcome of a sports game isn't 'joined or connected' with a financial instrument. The court wasn't buying it, stating the state's proposed requirement 'raises the bar beyond what the Act requires.' In other words, New Jersey was trying to gatekeep harder than a VIP-only Discord server, and the judges told them to touch grass.

Circuit Judge Jane Roth didn't minces words in her dissent, calling the products 'sports gambling' and pointing to contracts on NFL game winners, point spreads and combined scores as examples. She said the majority's analysis didn't do justice to the thorny issue. Roth was essentially the only one at the party pointing out the emperor has no clothes, but hey, somebody's gotta hold the dissenting opinion flag high.

The ruling is a win for prediction market providers arguing federal law gives the CFTC exclusive jurisdiction. But it's not all green candles for the industry the Ninth Circuit recently declined to block Nevada's enforcement action against Kalshi, showing courts remain divided on the preemption question. The legal landscape looking more like arug-pull than a bull run, with different circuits pulling in completely different directions like a DAO with no governance consensus.

CFTC Chairman Michael Selig, speaking at a Vanderbilt event, made clear the regulator plans to defend its turf: 'Our definition of commodity and statute is very broad. It includes events on sports, it includes events on politics, it includes corn and grains and all sorts of things.' Selig out here making it clear the CFTC wants to be the one holding the gavel, not to mention the corn futures.