Attorney Criticized CFTC for Greenlighting Kalshi in Defiance of New York Court Order

Earlier this month, the Commodity Futures Trading Commission (CFTC) invoked its emergency authority to order prediction market operator Kalshi to continue operating despite a New York lawsuit seeking to shut down its event contracts. However, this has resulted in Joe Webster, a partner at Hobbs Strauss, criticizing the federal regulator, explaining that there have been real questions about the CFTC’s compliance with court orders and about prediction market providers. CFTC Receives Criticisms The whole thing started when Kalshi notified the CFTC in June after New York Attorney General Letitia James filed a lawsuit against the platform. The lawsuit is seeking a restraining order to block its event contracts, along with more than $36 billion in damages. During the Indian Gaming Association’s (IGA) New Normal webinar, Webster said that the CFTC’s orders effectively require companies to continue offering the contracts even if a court orders or directs them to stop. He argued that such decisions fall within the authority of the courts and that “the federal agency doesn’t get to usurp that judicial function.” He also added that the issue is playing out in multiple states, raising significant questions about compliance and the extent to which companies are required to comply with conflicting directives. New York isn’t the only state in which the CFTC has allegedly defied court orders to greenlight Kalshi’s operations. Connecticut has also recently been the scene of a similar case as federal judge Vernon D. Oliver ruled that the CFTC lacks the authority to override the court’s interpretation of federal law when determining how to reconcile Kalshi’s obligations with Connecticut’s gaming statutes. CFTC Continues to Fight for Prediction Markets While many states are resisting the CFTC’s orders, the federal regulator has been firing back in legal battles. It has filed federal lawsuits against at least nine states, including Arizona, Connecticut, Illinois, Kentucky, Minnesota, New York, Rhode Island, and Wisconsin. In them, the CFTC seeks to prevent state authorities from enforcing regulations against federally regulated platforms such as Kalshi and Robinhood. In Arizona’s case, specifically, Scott Crowell, an attorney with Crowell Law Office Tribal Advocacy Group, noted that the state took the bold step of filing a criminal action against Kalshi. However, as the litigation progressed, the CFTC responded by suing the state, and the two cases were ultimately consolidated in federal district court. US District Judge Michael Liburdi subsequently ordered Arizona to halt its prosecution of Kalshi. In granting a preliminary injunction, Liburdi concluded that federal law preempts state gambling laws to the extent that they attempt to regulate derivatives exchanges operating in markets overseen by the CFTC. Crowell also pointed to the CFTC’s involvement in the New York lawsuit, where Kalshi was unsuccessful in securing a preliminary injunction. He argued that the agency’s emergency order effectively directs Kalshi not to comply with state law orders. He said the situation is particularly concerning because a federal court had already ruled that Kalshi was not authorized to operate outside the parameters of New York law. The attorney characterized the CFTC’s directive as a federal agency instructing a federally regulated company to disregard a federal court order. Crowell concluded that, in his 50 years as an attorney, he had never witnessed such “blatant contemptuous disregard” by a federal agency.