Federal Court Halts Tennessee's Action Against Kalshi Prediction Markets Platform
A preliminary injunction was issued by Judge Aleta Trauger in favor of Kalshi, determining that its sports-related event contracts are subject to CFTC regulatory authority.
A federal judge in Tennessee has issued a temporary order preventing the state from applying its gambling regulations to Kalshi's sports event contract offerings on its prediction markets platform.
Judge Aleta Trauger of the US District Court for the Middle District of Tennessee delivered the decision on Thursday, permitting Kalshi to maintain its sports-related event contract services for Tennessee residents as the company's legal challenge against state regulators moves forward through the courts.
In her ruling, Trauger determined that Kalshi demonstrates a strong likelihood of prevailing on its argument that federal commodities regulations supersede Tennessee's efforts to classify and regulate its sports markets as unlawful gambling operations.
The judge's decision stated that the sports event contracts offered by Kalshi qualify as "swaps" according to the Commodity Exchange Act, placing them under the sole regulatory authority of the US Commodity Futures Trading Commission (CFTC), and determined that Tennessee's enforcement actions are probably preempted based on conflict preemption legal doctrine.
The preliminary injunction is enforceable against the state officials named in the lawsuit, though the Tennessee Sports Wagering Council was removed from the case based on sovereign immunity protections, and the court required Kalshi to provide a $500,000 security bond.
Long-running clash with states
The legal battle in Tennessee represents the latest development in an expanding conflict regarding the regulatory treatment of event contracts across the United States.
A previous temporary restraining order issued by Judge Trauger had already suspended enforcement of Tennessee's cease-and-desist directive, which claimed that Kalshi was conducting unlicensed sports betting operations, demanded the company cease providing sports event contracts to Tennessee residents, nullify existing contracts, and return customer deposits, while also warning of potential fines and additional legal proceedings.
Kalshi has pursued similar legal remedies in federal courts across several states, including Nevada, New Jersey, and Connecticut, in response to cease-and-desist orders targeting its event market offerings, with judges arriving at varying decisions regarding whether to issue preliminary relief measures.
CFTC steps in to defend prediction markets
The injunction decision arrives amid an evolving federal regulatory environment, with the CFTC taking steps to establish its primary authority over prediction market platforms.
During a video statement released on Tuesday, CFTC Chair Michael Selig announced that the regulatory agency had submitted an amicus curiae brief to protect its "exclusive jurisdiction" over prediction market operations, cautioning state regulatory bodies that the Commission would confront them in legal proceedings if they attempted to challenge federal regulatory control over these derivative market platforms.