Arizona's criminal case against Kalshi was halted by a federal judge after the Trump administration stepped in

• Kalshi says it's a financial market, but Arizona prosecutors say it's arranging illegal sports bets.
• A Trump-appointed regulator says Kalshi's sports bets are legally swaps and states need to back off.
• On Friday, a judge sided with the federal government, putting Arizona's criminal case on pause.

A judge on Friday ordered Arizona's attorney general to temporarily pause its criminal case against Kalshi, handing a win to the Trump administration in its effort to stop states from regulating prediction markets.

Federal Judge Michael Liburdi's decision to back the US Commodity Futures Trading Commission in the case came at the end of a hectic week of arguments in which a lawyer for the federal regulator said a state criminal case would be a "flawed" way to settle hotly contested questions about whether prediction markets can list sports, politics, and other controversial markets.

State prosecutors filed 20 charges of illegal betting and election betting against Kalshi last month. The charges, all misdemeanors, characterize Kalshi's contracts as the kind of bets that are either prohibited under Arizona law or require a state gambling license. The criminal case also had the effect of halting a federal challenge that Kalshi had filed to Arizona's regulatory power.

Then the CFTC stepped in, suing Arizona and two other states earlier this month. The state on Friday argued that Congress never meant to let swaps that bear many similarities to sports bets take place on federally regulated exchanges. Liburdi issued an order that will prevent Arizona from moving forward with a criminal arraignment of Kalshi that had been scheduled for Monday.

"I will enter a temporary restraining order," the judge said, granting the CFTC's request to halt the state's prosecution. He didn't immediately state what the specific provisions of the order would be, but lawyers for the attorney general agreed to show up to criminal court first thing Monday and ask for their case against Kalshi to be paused.

Robert J. DeNault, a senior lawyer at Kalshi, hailed the decision on X, calling it "a step in the right direction."

The CFTC's leader, Michael Selig, has posted videos and made the rounds of podcasts in recent weeks to defend his agency's authority to regulate prediction markets. The Trump administration has generally applied a light regulatory touch on the industry.

"Arizona's decision to weaponize state criminal law against companies that comply with federal law sets a dangerous precedent, and the court's order today sends a clear message that intimidation is not an acceptable tactic to circumvent federal law," Selig said in a statement after the ruling.

Prediction markets like PredictIt, Kalshi, and Polymarket have existed for years, but they experienced a surge in usage around the 2024 election.

Since Donald Trump returned to office, Trump's son, Donald Trump Jr., has become a paid advisor to Kalshi, and an investment firm he works for invested in Polymarket. Kalshi also began hosting sports-related markets, which it had not done during the Biden administration.

Federal law prohibits commodities markets related to things like war, assassination, and "gaming," but the specific meanings of those terms have been debated in court.

Many states, but especially those where the traditional gambling industry holds sway, like Nevada and New Jersey, have argued that the contracts on prediction markets relating to sports, and sometimes politics, are illegal. Some members of Congress have also proposed new laws to regulate prediction markets.