While the election contract case is in the past for Kalshi, there will be no shortage of court appearances in the coming months for the financial company.
Kalshi is currently embroiled in three different lawsuits the company filed against state regulators in Maryland, Nevada and New Jersey. These regulators all issued cease and desist orders to the company, saying that its growing market of event contract tied to sports outcomes are in violation of state gaming laws.
So far, Kalshi has been granted preliminary injunctions keeping sports contracts online in Nevada and New Jersey, while there will be a hearing on the injunction in Maryland at the end of the month.
New Jersey appealing Kalshi injunction
While Nevada regulators have proceeded straight to a motion to dismiss, New Jersey has filed an appeal on the ruling granting the injunction in its case, which will be heard by the Third Circuit Court.
Meanwhile, Maryland Lottery and Gaming filed its response in opposition to the preliminary injunction request.
In the filing, state regulators trod out several of the arguments made and rebuffed in other states, including the scope of the Commodity Exchange Act (CEA) and the economic impact of a single sporting event.
The brief takes a closer look at the CEA than other states have, including why the measure came about in the first place.
“Its purpose was ‘to remedy the confusion about whether certain types of commodities transactions came within the definition of a security and thus subject to regulation under the securities laws,'” the filing noted.
The brief also outlined the contribution of the Dodd-Frank Act to the powers of the Commodity and Futures Trading Commission (CFTC) in 2010 that aimed to crack down on unregulated swaps, conveying authority over the market to the CFTC.
Maryland also argues sports events can’t be swaps
Like New Jersey though, Maryland suggests that a sporting event quite clearly falls under the CFTC’s special rule regarding gaming and also lacks the economic impact necessary to meet the definition of swamp.
“Kalshi’s gaming devices do not fit within this core concern or ordinary meaning of the text because the outcome of a sports game is not a ‘good’,’article’,’service’, ‘right’ or ‘interest’ that can be ‘delivered’ by a contract,” the state argued.
In other filings, Kalshi used both St. Peter’s Cinderella run in a past March Madness tournament and Rory McIlroy’s recentvictory over Justin Rose in The Masters as examples of sporting events with economic consequences, but Maryland pointed out that not all sporting events are created equal when it comes to economic impact.
“If the surrounding economic activity is considered ‘associated with’ the outcome of a sporting event, the CFTC would need to undertake a case-by-case inquiry as to whether a particular sporting event is likely to have sufficient economic consequences such that bets on their outcomes qualify as “swaps” immune from state regulation. This approach would be an administrative nightmare for the CTFC and cannot be what Congress intended when it passed Dodd-Frank.”
While Kalshi pushes ahead in court about what the CFTC does and does not regulate, the CFTC is in the midst of organizational turmoil, as the group recently put a number of staffers on administrative leave pending an investigation and review.
