Appeals Court Denies Kalshi and Coinbase Temporary Protection

Kalshi and Coinbase face another legal setback in their battle against state-level regulation of prediction markets. The US Court of Appeals for the Second Circuit refused their requests to temporarily block New York and Connecticut officials from enforcing gambling laws on their contracts for sports events. Kalshi and Coinbase Face Continued Legal Pressure in New York and Connecticut The ruling, dated November 3, deals with three separate appeals between the two companies. Kalshi is fighting enforcement actions by New York State’s Gaming Commission and the Connecticut Department of Consumer Protection. Separately, Coinbase is battling action taken by Connecticut Attorney General William Tong. The three-judge panel declined to issue injunctions as the cases go through the appeals process. However, its two-page order offered little explanation, stating only that the companies had not demonstrated sufficient grounds for temporary protection. The dispute is over whether prediction market contracts should be regulated under federal derivatives legislation or state gambling laws. Kalshi and Coinbase say their sports-related products are “swaps” under the Commodity Exchange Act (CEA). They say this puts their operations under the Commodity Futures Trading Commission (CFTC), which blocks individual states from applying their gambling laws. State officials take a different view. New York and Connecticut have made sports event contracts equivalent to unlicensed sports bets. They say their traditional jurisdiction over gambling includes regulating such activities. The latest ruling does not resolve this dispute. It does not force either company to cease trading or liquidate existing positions. Instead, both platforms must continue to defend their legal position without the temporary protection they had sought. Kalshi Faces Conflicting Court Rulings Across US States New York and Connecticut judges had rejected Kalshi’s efforts to block state enforcement. New York filed its lawsuit against Kalshi in July, seeking to block its sports contracts and impose financial penalties. The state’s claim for possible damages has been pegged at $36 billion. Connecticut took its own enforcement action against Kalshi in August. Connecticut is also putting pressure on Coinbase. The exchange recently revealed its prediction market business had over $200 million in annualized revenue, highlighting the financial stakes in the dispute. The Second Circuit’s ruling adds to a growing patchwork of legal divisions. Federal appeals courts have reached opposite conclusions on whether federal derivatives law trumps state gambling regulations. The Third Circuit previously sided with Kalshi in its dispute in New Jersey, while the Sixth and Ninth Circuits have sided with state regulators in other cases. Kalshi has also encountered roadblocks elsewhere. In July, the company reached an agreement to block Nevada residents from accessing contracts for sports, elections, and entertainment. The deal came after allegations that it kept supplying restricted products despite a court order. The company risked penalties of $120,000 per day for not implementing enhanced geofencing. However, Kalshi has also won some good decisions. In February, a federal judge in Tennessee ruled that its sports event contracts were swaps under the CEA. The ruling allowed the platform to continue to operate in the state.