Kalshi is making an attempt to keep its sports event contracts alive in Massachusetts after a judge granted a request to offline the offerings while the state sues the company.
On Friday, Kalshi filed an emergency motion to stay the preliminary injunction granted by Suffolk County Civil Court Judge Christopher Barry-Smith that requires the prediction market to shutter operations in Massachusetts. Barry-Smith granted the preliminary injunction following a request by Attorney General Andrea Campbell, who teamed up with the Massachusetts Gaming Commission (MGC) to sue Kalshi in state court.
“We’re not looking to unwind any transactions that have already happened but want to prohibit subsequent transactions relating to those contracts [sports]. Otherwise, it’s just another version of sports wagering,” said representatives for Campbell’s office during a hearing on the case on Friday.
Kalshi filed an emergency motion to stay the preliminary injunction granted by Barry-Smith as the company would “suffer irreparable harm” if it were not allowed to operate in the Bay State. Kalshi filed the emergency motion as it also plans to appeal the preliminary injunction.
During the hearing on the case on Friday, Barry-Smith vowed not to put the preliminary injunction into effect until he has received further correspondence from both parties, keeping Kalshi’s sports event contracts alive in Massachusetts until he has entered a ruling.
Kalshi points to new CFTC chair in emergency motion
Kalshi continues to argue that its operations fall under the Commodity Exchange Act (CEA) as it preempts all other laws concerning the operation of swaps and derivatives. The CEA allows the CFTC to regulate swaps and derivatives. However, Barry-Smith declared in court proceedings last week that the CEA is intended to work alongside state laws and not supersede them.
In its emergency motion for stay, Kalshi argues that the CFTC’s new approach to regulation does not call for state laws to interfere with CFTC regulation. Last month, Senate members confirmed crypto expert Michael Selig as CFTC Chairman following an arduous selection process. In an op-ed for the Washington Post, Selig announced a new CFTC regulation initiative that has the CFTC “deliver the minimum effective dose of regulation—nothing more and nothing less. This means an end to policymaking through enforcement.”
“An ‘additional’ dose of regulation above what the CFTC requires openly conflicts with that policy,” argues Kalshi in its emergency motion to stay the preliminary injunction.
Geolocation concerns raised by Kalshi
As a result of a preliminary injunction, Kalshi would be required to integrate geolocation technology into its platform. In its emergency motion, Kalshi notes that geolocation technology requires annual investments that can reach “millions of dollars” and that it is doubtful that it will be able to recover that investment. An active preliminary injunction would also require Kalshi to implement geolocation fencing within seven days of the injunction taking effect, a deadline the company considers “not technologically feasible.” As a result, Kalshi would be out of Massachusetts compliance even without a granted stay.
“Kalshi’s tech stack is not made for this,” said legal counsel for Kalshi during the hearing.
Kalshi considers a quick turnaround of integrating geolocation technology unrealistic, despite Barry-Smith noting that the CFTC sent a notice to all futures commission merchants, introducing brokers, designated contract markets and derivatives clearing organizations. The notice advised the group to prepare for all “foreseeable conditions that may result from facilitating the trading and clearing of sports-related event contracts for customers, market participants, and clearing members.” The conditions include any requests by gambling regulators for the sports event contract providers to exit states.
The notice provided Kalshi with the ability to prepare to integrate geolocation fencing.
Barry-Smith plans to revisit the case in the coming weeks as legal counsel for both parties continue to make their case. He will not put the preliminary injunction into action until he considers Kalshi’s emergency motion. If rejected, Barry-Smith expects Kalshi to appeal.
Kalshi is facing a similar issue in Nevada
Kalshi is also going back and forth about sports event contracts in a Nevada court. Kalshi continues to operate in Nevada despite District Court Judge Andrew Gordon no longer honoring a preliminary injunction he previously granted the prediction market. Kalshi could also seek a stay on Gordon’s ruling to delay enforcement and geolocation integration.
Crypto.com received a similar ruling to Kalshi in Nevada, leading to its exit from the state.
