Arizona Files Criminal Gambling Charges Against Kalshi

The fight over prediction markets has entered a new phase in the Copper State.

Arizona Attorney General Kris Mayes filed criminal misdemeanor charges against Kalshi last week. She alleges that the operator has been offering illegal gambling without a license to join the regulated Arizona sports betting market. The charges also include illegally offering bets on elections, which is illegal in the state.

"Kalshi may brand itself as a 'prediction market,' but what it's actually doing is ​running an illegal gambling operation and taking bets on Arizona elections, both of ⁠which violate Arizona law," the Attorney General shared in a statement.

The news wasn’t a surprise for Kalshi, who had been attempting to get ahead of the issue. The operator had filed for a restraining order to prevent Arizona from pursuing criminal charges, but a US District Judge rejected it.

Statements from Kalshi accused Arizona of unjustly targeting prediction platforms, despite lacking the authority to regulate them. 

“Sadly, a state can file criminal charges on paper-thin arguments,” Kalshi shared in a statement to CNBC. “States like Arizona want to regulate a nationwide financial exchange individually, and are trying every trick in the book to do it. As other courts have recognized and the CFTC affirms, Kalshi is subject to federal jurisdiction.”

All Roads Lead to the Supreme Court

The charges from Arizona are a clear escalation, but they won’t change how this debate will ultimately be decided.

While a war of words over prediction markets continues, cases against the industry continue to advance through the US court system. States have held the advantage so far, but each case faces appeals after each ruling, setting them on a path towards the Supreme Court.

Unless one side gives up the fight, it will be up to the nation’s highest court to finally decide if prediction markets are gambling or a form of “swaps.” This question has been hotly debated, and focuses on the Commodities Exchange Act. The language has been interpreted in several different ways, but the Supreme Court can finally provide clarity.