The US District Court District of Connecticut has denied a preliminary injunction filed by Kalshi, a prediction market platform, against the state, seeking to halt the state’s attempt to regulate the company under existing gaming laws.
Connecticut Wins Lawsuit Against Kalshi – For Now
The argument ran on familiar lines. Because Kalshi is certified by the Commodity Futures Trading Commission (CFTC), and as such, it should not be subject to state gaming laws, which Kalshi argues is tantamount to state regulation preemepting federal laws.
This line of reasoning however has fallen through with District of Connecticut Judge Vernon D. Oliver who said that sports event contracts cannot be solely regulated under the Commodity Exchange Act (CEA), the main piece of legislation that regulates the operation of prediction market platforms.
Judge Oliver released his opinion, explaining why he believed that the company would not be able to use this defense in its case:
“Kalshi’s sports-event contracts fail to satisfy this portion of the statutory definition of a swap because they do not depend on whether an underlying sporting event occurs, fails to occur, or occurs to a particular extent. Instead, Kalshi’s sports-event contracts depend on the event’s outcomes or discrete in-game occurrences. Treating those outcomes as separate ‘events’ would depart from the ordinary meaning of the term. Thus, Kalshi’s sports-event contracts do not fall within § 1a(47)(A)(ii).”
District of Connecticut Judge Vernon D. Oliver
Another point Judge Oliver raised is that Kalshi has been known, according to him, to historically use this exact line of reasoning, i.e., that it offers betting products through the use of specific marketing language that suggested as much.
Connecticut Judge Not Convinced Sports Event Contracts Are Swaps
As such, the court, said the judge, disagreed that the types of “sports wagers” offered by Kalshi fell under the categorization of swaps or that they were indeed overseen by the CFTC.
Furthermore, the judge added that Kalshi had not demonstrated that it would succeed on the merits of defining sports event contracts as swaps, nor was the company able to argue beyond doubt that Connecticut’s gambling laws were indeed preempted by federal statutes.
The recent outcome is the result of a lawsuit that Kalshi filed in the US District Court against the Connecticut Department of Consumer Protection seeking to impose a preliminary and permanent injunction, and thus prevent the state from regulating the prediction market platform under its gaming laws.