A Michigan state court judge on Wednesday cited seven reasons why she ordered Kalshi to stop offering sports event contracts in the state and to geoblock the state, or else pay a daily fine of $500,000.
Michigan Circuit Court Judge Rosemarie Aquilina granted state Attorney General Dana Nessel a preliminary injunction against the prediction markets platform on Sept. 1. The ruling follows a temporary restraining order that was issued against the company on June 29.
“Kalshi long attempted to pass itself off as a legitimate gaming operation in our state, and I am relieved that this order further protects Michigan residents from its predatory, unlicensed practices,” said Nessel in a statement on Sept. 2. “My office will continue to defend Michiganders and enforce our gaming laws, which ensure gambling revenue is regulated and distributed back into our communities.”
Judge outlines seven reasons for granting injunction
Aquilina detailed seven distinct reasons for providing the state with further relief:
- Firstly, while Michigan gaming laws set the minimum online gambling age at 21, Kalshi allows users as young as 18 to trade on sports. “If Kalshi is allowed to continue to offer sports wagers, the potential irreparable harm on Michigan’s youth would be profound,” wrote the judge.
- “Second, Kalshi takes advantage of serious mental health issues without providing the protections that Michigan’s regulatory structure was designed to do.”
- “Third, Kalshi eludes the comprehensive patron protection mechanisms found in Michigan’s regulatory framework.”
- Fourth, she added, by not complying with state gaming laws, the federal designated contract market (DCM) has “a massive and unfair advantage” over state-licensed gaming operators.
- Aquilina also wrote that Kalshi is “undercutting” state funding for schools, compulsive gambling prevention, economic development, and first responders.
- The judge added that the city of Detroit’s own gaming taxes, which it uses to fund public services including law enforcement and infrastructure, are also threatened by prediction markets operations.
- She also pointed to impacts on Michigan’s tribes, suggesting that Kalshi’s sports event contracts hurt tribes “by depriving them of the revenue they need to operate their governments and serve their citizens, while also ignoring their sovereignty.”
What must Kalshi do next in Michigan?
Under the terms of the preliminary injunction, Kalshi must now take several steps in Michigan:
- Stop offering or otherwise facilitating any sports prediction market trading or other products “functionally similar to internet sports betting” to anyone or via any platform available in Michigan
- Stop accepting deposits or other fees in connection with sports event contracts
- Block new account creation or funding
- End all advertising and marketing of sports products, whether via its own channels or third parties including influencers
By the end of Sept. 4, the firm must also provide a copy of the preliminary injunction order to every futures commission merchant (FCM) that offers sports event contracts processed on Kalshi’s exchange. FCMs that have operational prediction market partnerships with Kalshi include Robinhood and PrizePicks.
Block Michigan or pay $500,000 per day
When Aquilina issued the TRO in late June, the judge required Kalshi to use a third-party geolocation service to block Michiganders’ access to its sports event contracts during the 14-day order period.
Now, Aquilina’s preliminary injunction order directs the operator to goeblock the state using a third-party geolocation services provider licensed by the Michigan Gaming Control Board “that is capable of ensuring compliance with the geofencing specifications” of the MGCB.
The judge decreed that Kalshi will have to pay a fine of $500,000 for every day that the court finds the company did not comply with the geolocation requirements of this order. In Aquilina’s words, that is necessary because if Kalshi does not adequately geoblock Michigan, it may limit the state’s ability “to identify ill-gotten gains for the purpose of disgorgement.”
Asked for comment on the preliminary injunction order and its geolocation aspects, Kalshi provided SBC Americas with the same statement it offered upon receipt of the TRO in June:
“It’s no surprise that we disagree with the state’s decision and will fight it in court,” said Head of Communications Elisabeth Diana. “Kalshi is subject to exclusive federal jurisdiction. We won’t be bullied by interests that care more about protecting their monopolies than their consumers. In the meantime, we’re implementing restrictions.”
Ninth Circuit picks lock on Kalshi geoblock argument
The Michigan injunction and geofencing order come just days after U.S. Court of Appeals for the Ninth Circuit judges took a dim view of Kalshi’s repeated argument that it cannot satisfy both state geofencing orders and federal requirements for DCMs simultaneously.
“Kalshi’s argument offers a false, all-or-nothing proposition,” wrote Ninth Circuit Judge Ryan Nelson in a 3-0 ruling against Kalshi at the federal appeals court level on Friday, Aug. 28. ” … It does not explain why not offering sports events contracts in Nevada would run afoul of [the Commodity Exchange Act].
“Moreover, ‘regulated entities’ in Nevada use ‘geofencing.’ Kalshi could do the same; it just refuses to do so and instead seeks a competitive advantage over its competitors.”
How did we get here in Michigan?
A state with a long track record of pursuing enforcement action against sweepstakes casinos, offshore sportsbooks, and other platforms deemed to be offering gaming without a license, Michigan was one of the first states to speak out publicly against prediction markets last year.
AG Nessel sued Kalshi in state court in early March without first sending the operator any kind of enforcement notice, at a time when some states were still sending cease-and-desist letters before escalating the fight with litigation.
Kalshi’s attempt to move the case to federal court was rejected, keeping it in Ingham County Circuit Court.
Two weeks after Aquilina granted the TRO in June, the Commodity Futures Trading Commission (CFTC) took the unprecedented step of ordering Kalshi to defy the court by fulfilling all open trades by Michigan users, in direct contravention of the court’s order.
Kalshi Head of Enforcement Robert DeNault posted on X the same day to state that the company was “disappointed” by the CFTC’s order, adding that thecompany already complied with the Michigan court order by unwinding existing trades.
“We are being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations,” added DeNault.
SBC Americas also reached out to the CFTC for this story, but the commission did not respond by the time of publishing.
