CFTC Orders Kalshi to Ignore Court Ruling on Michigan Ban

The Commodity Futures Trading Commission has stepped up its fight to protect best prediction markets apps.

At the end of June, an Ingham County Circuit Court rejected Kalshi's request for a preliminary injunction, allowing Michigan to ban its sports contracts for at least two weeks. Yesterday, the court extended that window in August and instructed Kalshi to grofence the state by the 12th. The rulings also required Kalshi to cancel all open trades and refund customers.

This morning, CFTC Commissioner Michael Selig issued an emergency order for Kalshi to keep all previously executed transactions open. That means customers who purchased contracts can still be paid out if they win, despite the court order.

“A state cannot force a DCM to violate its obligations, and federal law does not permit a DCM to discriminate against a state’s residents,” Selig shared in a CFTC press release. “Canceling trades that have already been executed is an unprecedented step that risks a cascading effect on the entire marketplace and undermines the certainty in contracting that is a necessary component of a functioning market. The Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations.”

Now, Kalshi will need to decide which order to follow.

CFTC Courting Disaster

It’s easy to understand why the CFTC disagrees with the Michigan court order, but trying to overrule it is a dangerous gamble.

The American public isn’t buying the claim that sports prediction markets aren’t a form of gambling. The outcry has only grown over the last year, leading to more than a dozen active lawsuits filed by states against the industry. The CFTC has been actively fighting back against this effort, taking several states to court over the last few months. 

The CFTC tried to ease concerns earlier this year by releasing a proposal for new regulations on sports markets. However, the regulator stopped short of promising to enforce them or impose penalties on violators. 

With today’s drastic order requiring Kalshi to violate a state court order, the CFTC risks losing even more of the public’s trust. Any honest Kalshi review will point out that the platform's main appeal for users is its strict adherence to federal regulations; however, forcing the exchange into an "impossible position" between conflicting state and federal commands undermines that very sense of legal security. That’s especially true among Republican voters, many of whom hold states' rights in high regard. They may view the action as the federal government trying to erase those rights, especially considering the other issues plaguing the party at the federal level.

That’s a significant issue as November’s midterm elections are expected to shift power towards Democrats, who have been far more opposed to the industry.