The CFTC has ordered Kalshi to continue operating under federal rules as a Washington judge restricted seven contract categories and set two geofencing deadlines for the prediction market.
Summary
- Kalshi must introduce initial Washington geofencing by Aug. 19 and a multi-source system by Sept. 2.
- The Washington injunction covers sports, elections, politics, entertainment, culture, technology, and science contracts.
- A separate CFTC order requires Kalshi to operate under federal standards while New York seeks to halt its contracts.
- Commodity, climate, economic, and financial event contracts can remain available to Washington users.
The Commodity Futures Trading Commission said on Aug. 11 that it had used its emergency authority after Kalshi notified the agency of a market emergency tied to New York Attorney General Letitia James’ lawsuit against the exchange.
Under the CFTC emergency order, Kalshi must continue operating in line with the Commodity Exchange Act’s Core Principles. The agency issued the directive after New York asked a state court to halt the company’s event contracts and sought more than $36 billion in damages.
Although the federal action arose from the New York case, the order has entered the legal fight over whether states can restrict products offered by a CFTC-registered exchange. The agency’s Office of the General Counsel submitted the directive as supplemental authority to U.S. District Judge Lorna Schofield in the Southern District of New York, where the federal government is challenging New York’s enforcement position.
Sports betting lawyer Daniel Wallach described the directive as compelling Kalshi to defy state court orders. The CFTC’s public statement did not use that wording, saying instead that Kalshi must continue operating under the federal law governing designated contract markets.
Why the CFTC has ordered Kalshi to continue operating
New York filed its state action on July 31 and requested a temporary restraining order that, according to the CFTC, could stop Kalshi from offering all event contracts nationwide. The federal regulator said Kalshi notified it that such an order would create a market emergency.
New York’s complaint alleges that Kalshi operates an unlicensed gambling business and offers sports and other event-based products without approval from the New York State Gaming Commission. The state also claims the platform allows some users younger than New York’s legal sports betting age of 21 to trade the contracts.
As crypto.news reported in July, Attorney General James and Gov. Kathy Hochul are seeking at least $36 billion in restitution for affected users, disgorgement of alleged gains, and penalties tied to unauthorized sports wagering offers. Kalshi disputes the gambling classification and argues that its CFTC registration places the exchange under exclusive federal oversight.
In a related federal case, Kalshi has asked the Southern District of New York to pause proceedings until the Second Circuit Court of Appeals rules on its appeal. The company said the defendants did not oppose delaying discovery while the motion remains unresolved.
Wallach said New York could respond to the CFTC filing by challenging the federal government’s account of the dispute. According to the lawyer, state officials could raise an “unclean hands” argument or seek a temporary restraining order or preliminary injunction against the commission.
Washington gives Kalshi two geofencing deadlines
While the New York proceedings continue, King County Superior Court Judge John McHale has issued a preliminary injunction limiting Kalshi’s business in Washington.
The final terms require the company to stop offering, accepting, or facilitating contracts involving sports, elections, politics, entertainment, culture, technology, science, and mentions of specified events. Kalshi must also stop advertising and promoting the restricted products to Washington residents.
Under the order, an initial system based on users’ IP addresses and stated residency must be active by Aug. 19. Kalshi then has until Sept. 2 to install a multi-source geofencing system designed to identify and block users in the state more accurately.
Missing the Sept. 2 deadline could expose Kalshi to a penalty of $120,000 per day, according to reports on the order. The company may file an affidavit explaining any delay, leaving the court to determine whether the penalty should apply.
McHale did not bar every product on the platform. Washington residents may continue accessing contracts tied to commodities, climate, economics, and finance, categories that the court left outside the preliminary restrictions.
The judge had initially blocked Kalshi in July after finding that Washington was likely to succeed on claims that parts of the company’s business violated the state Gambling Act. McHale also found that potential harm to consumers and the public interest supported temporary limits while the lawsuit proceeds.
Kalshi’s request to stay the preliminary injunction during an appeal was denied. Wallach said the company could now ask the Washington Court of Appeals for similar relief.
Washington argues federal registration does not override state law
Washington Attorney General Nick Brown sued Kalshi in March, alleging that the platform offered and promoted unlicensed betting products to people in the state. His office has maintained that calling the products event contracts does not remove them from state gambling rules.
After the court issued the final injunction terms, Brown said Kalshi had profited from wagers covering sports, elections, natural disasters, and events related to the Iran war.
“Kalshi has gotten rich promoting wagers on sports, elections, natural disasters, events related to the Iran War, and more,” Brown said. “We will continue to enforce Washington law and hold Kalshi accountable for misleading consumers.”
Kalshi has taken the opposite legal position, arguing that contracts traded on its federally registered exchange fall under the CFTC’s exclusive jurisdiction. The company has relied on the Commodity Exchange Act and court decisions supporting federal preemption, including an April ruling from the Third Circuit involving New Jersey.
Court results have not been consistent across the country. Massachusetts, Michigan, Nevada, New York and Washington have obtained rulings allowing at least some state restrictions, while federal courts have blocked enforcement in other jurisdictions.
In Minnesota, for example, a federal judge blocked the state ban before it took effect on Aug. 1. The temporary injunction protected CFTC-registered designated contract markets, including Kalshi and Polymarket US, while related lawsuits moved forward.
Judge Katherine Menendez found that the plaintiffs were likely to succeed on part of their federal preemption argument. However, she did not decide that every event contract qualified as a federally protected swap and said a final order could cover fewer products.
State cases test the limits of CFTC authority
For U.S. users, the conflicting orders can determine which markets remain available based on their location. Kalshi’s federal registration allows it to operate as a designated contract market, but several states maintain that sports and similar products remain subject to local gambling laws and licensing requirements.
The CFTC has responded by suing states and supporting prediction market operators in cases involving state enforcement. Its position rests on the Commodity Exchange Act’s grant of exclusive jurisdiction over swaps traded on registered exchanges.
State officials have challenged that reading, arguing that Congress did not remove their traditional authority over gambling. In July, U.S. District Judge Analisa Torres rejected Kalshi’s request to stop New York from enforcing its laws against sports contracts, finding that the company had not shown that federal law displaced the state’s authority.
Federal oversight also places restrictions on how prediction markets present their products. In August, the CFTC warned regulated platforms against displaying contracts through American-style betting odds and reminded operators that their advertising and solicitation practices must comply with derivatives law.
Separately, the New York City Council has opened an inquiry into alleged deceptive advertising involving Coinbase, Kalshi, Polymarket, and Gemini. The council’s investigation is expected to place particular attention on Polymarket and how prediction-market products are promoted to city residents.
