Speaking on the Indian Gaming Association’s ‘The New Normal’ webcast on Wednesday, two gaming attorneys agreed that the Commodity Futures Trading Commission (CFTC) has taken remarkable and unprecedented steps by directing Kalshi to defy court orders.
Twice in the last six weeks, the federal regulator has said that it is “exercising its emergency authority” to issue direct orders to the prediction market platform.
- First, on July 14, the CFTC announced that it would order Kalshi to fulfill open trades in Michigan, an action that would be in direct conflict with a court order requiring the company to geoblock the state and void and refund certain trades on sports.
- Then, on Aug. 11, the CFTC responded to a Kalshi request by issuing an emergency declaration directing the company to continue operating in New York despite the state ordering it to stop and Attorney General Letitia James filing a $36bn lawsuit against Kalshi.
CFTC showed ‘blatant disregard’ for courts, argue lawyers
Host and IGA Conference Chair Victor Rocha and IGA Executive Director Jason Giles accused the CFTC and Kalshi of “openly defying” court orders.
“And then you have the CFTC sending around notices telling the prediction markets to defy court orders,” remarked Giles. “What is going on with that? I mean, can you imagine a tribal gaming operation doing something like that, with the NIGC [National Indian Gaming Commission] running interference?”
Discussing the New York case with the IGA leaders, the attorneys voiced surprise and disbelief at what they deemed an aggressive stance by the CFTC.
“The CFTC has put out these orders and notices suggesting that even if a court decision directs a company to stop taking these particular contracts, they’re required to continue to do so anyway,” said Joseph Webster, a managing partner at Hobbs, Straus, Dean & Walker, LLP. “I will say I’ve never seen anything like that.”
Crowell Law Office Tribal Advocacy Group attorney Scott Crowell suggested that CTFC Chairman Michael Selig, currently the only commissioner at the federal agency, is setting a stark precedent by encouraging its registrants to be “in blatant violation” of court orders.
“When you already have a federal court saying ‘Kalshi, you do not have permission to continue to operate outside of the parameters of New York law’, that literally is a federal agency telling a regulated entity to defy a federal court order,” he said. “In my 50 years of being a lawyer, I’ve never seen blatant contemptuous disregard by a federal agency. That’s new.”
Where has CFTC intervened in court?
Court actions continue across the country, with the CFTC increasingly involved. To date, the federal agency has stepped into the litigation battle in numerous states via either court filings, amicus briefs, or executive orders pertaining to court rulings. Those include:
- Arizona
- Connecticut
- Illinois
- Kentucky
- Minnesota
- New York
- Wisconsin
“It’s been an incredible 18 months or so of litigation,” said Webster. “I think at this point we’re up to something like 80 cases or so of various types in both federal court, state court … To me, it’s just unprecedented, the number of cases.”
Crowell posited that by arguing so strongly in favor of sports event contracts being regulated at the federal level, the CFTC and its registrants are suggesting that Congress intended for the CFTC to become the regulator of the gaming industry.
“But the very fact that the CFTC did nothing in that arena from 2018 to date is evidence that, no, that was never the intent,” he said. “The CFTC, until Selig came came along, fully understood that that wasn’t the intent, and now he’s just trying to manufacture out of thin air the regulatory infrastructure to govern these markets … What they’re really doing is being a cheerleader for the prediction market operators.”
Do all roads lead to Supreme Court?
The panelists agreed that the issue will ultimately be decided in the Supreme Court. Webster said that he expects the state of New Jersey to file a petition for a writ of certiorari to the Supreme Court by Sept. 3 after the 2-1 opinion that went against the state in the U.S. Court of Appeals for the Third Circuit in early April. A writ of certiorari is a mechanism by which a higher court formally reviews the records of a lower court case.
“We don’t know if the Supreme Court will take it,” the attorney noted. “I think there’s reasons to think that they might. But whether it’s that case or one of these other cases that’s coming up through the courts, ultimately this is going to be resolved by the Supreme Court.”
Oral arguments have been heard in other appeals courts, including the Sixth Circuit. Those courts have not issued opinions, but some observers suggested that the momentum seemed to be going against prediction market platforms.
Webster certainly believes so.
“We’ve seen the questions that the judges have, and what that’s translated to is a real sea change in terms of the results in the courts …” he added. “I think there’s a decent chance that we’re going to see a split in the circuits, which is one of the factors that is very significant in terms of whether the [Supreme] court decides to review a case …
“I think it certainly seems like the trend has turned pretty significantly in favor of states and tribes and against the prediction markets.”
