DOJ and CFTC Sue Arkansas Over State’s Kalshi Gambling Case
The Justice Department and Commodity Futures Trading Commission are asking a federal court to stop Arkansas from pursuing its gambling case against Kalshi. The agencies say federal law governs certain event contracts. Arkansas says Kalshi is offering illegal gambling and engaging in deceptive business practices.
- Federal position: The Commodity Exchange Act gives the CFTC authority over covered event contracts.
- Arkansas’s position: Kalshi’s products amount to unlicensed gambling and involve deceptive conduct.
- No ruling at filing: The federal court had not decided whether to block Arkansas’s enforcement efforts.
Two cases, two competing views
The DOJ and CFTC filed their lawsuit on November 12 in the U.S. District Court for the Eastern District of Arkansas. They named Arkansas and Attorney General Tim Griffin as defendants. Kalshi is not a defendant in the federal case.
The agencies want the court to declare that federal law governs the covered trading and to bar Arkansas from applying its gambling and consumer-protection laws to specified transactions on CFTC-regulated exchanges. They are also seeking protection for registered markets’ affiliates and business partners. The court would decide how far any order extends.
The government argues that the event contracts at issue qualify as “swaps” under the Commodity Exchange Act, the federal law governing certain derivatives. It says trading those contracts on a CFTC-registered designated contract market falls under the commission’s authority. A designated contract market is an exchange registered with the CFTC to offer derivatives trading.
Arkansas filed a separate case against KalshiEX LLC and Kalshi Inc. on November 4 in Independence County Circuit Court. The state alleges that Kalshi offered unlicensed gambling on sports, elections and entertainment, and misrepresented the legality and risks of its products. Those allegations are set out in the state’s complaint.
Griffin also accused Kalshi of accepting customers as young as 18 and avoiding state licensing, oversight and applicable taxes. Those remain allegations, not court findings. The age allegation alone does not establish that state casino age rules apply to trading on a federally regulated exchange.
“Arkansas law is concerned with substance, not semantics, ” Griffin said in a November 4 statement.
What Arkansas wants from the court
Arkansas is seeking an injunction, repayment to affected customers, restitution of proceeds it alleges were unlawful, taxes it says are owed, and civil penalties. The complaint says the state’s consumer-protection law allows penalties of up to $10, 000 per violation.
These are remedies the state has requested, not payments Kalshi has been ordered to make. The allegations have not been proven, and the court has not awarded the state money or penalties.
The state’s claims go beyond what the contracts are called. Arkansas alleges both unlawful gambling and deceptive business practices. Even if a court rules on which regulator has authority over derivatives trading, it may still have to consider how that ruling affects the state’s separate consumer-protection claims.
The legal question is about jurisdiction, and its limits
The federal agencies rely on preemption, the principle that federal law can displace state requirements when Congress has assigned authority over a subject to federal regulators. They argue that the Commodity Exchange Act gives the CFTC authority over the covered trading. Arkansas says its laws still apply because the activity amounts to gambling and involves alleged consumer deception. The jurisdictional battle over event contracts turns on how those competing claims fit together.
Neither label settles the dispute. Calling a product a derivative does not prove that every contract is lawful. Calling it gambling does not answer whether federal law limits state enforcement. Courts must examine the contracts, the statute and the specific state rules being challenged.
CFTC Chairman Michael Selig stated the agency’s position in an October 27 announcement: “Congress entrusted the CFTC to be the federal regulator with sole responsibility to oversee these markets.” That is the agency’s view. No court has ruled that the CFTC controls every event contract or every related consumer-protection issue.
A Third Circuit decision in the separate New Jersey dispute offers some support for Kalshi’s federal argument, but only within limits. In a 2-1 decision, the appeals court upheld a preliminary injunction restricting New Jersey’s enforcement of gambling laws against Kalshi sports contracts traded on a CFTC-registered exchange.
At that preliminary stage, the majority found Kalshi likely to succeed on its argument that the contracts qualified as swaps and that federal law preempted New Jersey’s enforcement in that setting. The decision was not a final ruling on the merits. It did not concern Arkansas law or establish a nationwide rule.
The dissent said Kalshi’s contracts closely resembled sportsbook offerings and argued that states should retain room to regulate gambling. The dispute also raises whether particular contracts comply with the Commodity Exchange Act and CFTC rules. Federal oversight does not automatically make every event contract permissible.
New Jersey’s petition asking the Supreme Court to review the dispute does not mean the justices have agreed to hear it. The Third Circuit’s reasoning may influence other cases, but Arkansas is a separate dispute in a different jurisdiction.
Other states are testing the same boundary
Gaming lawyer Daniel Wallach described Arkansas as the eleventh state involved in disputes over prediction-market oversight. He identified Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, Utah and Wisconsin as earlier states. That count reflects Wallach’s characterization, not an official tally of identical cases.
The federal case against Arkansas followed a similar lawsuit against Utah in October. Polymarket US and OG.com, a prediction-market business associated with Crypto.com, filed separate federal challenges against Griffin and state gaming officials on November 9. Those cases are separate from the DOJ and CFTC’s lawsuit.
Other proceedings show how uneven the legal picture remains. On November 4, a California federal judge issued a preliminary injunction restricting Kalshi sports contracts on the lands of Blue Lake Rancheria and Chicken Ranch Rancheria. The order applies to those specified tribal lands, not to California statewide.
Louisiana Attorney General Liz Murrill sued Kalshi, Polymarket and other operators on November 12, including businesses associated with Robinhood and Coinbase. Later that day, state Judge Jeffrey Johnson issued a temporary restraining order covering event contracts offered to people in Louisiana without a gaming license. The order was described as lasting ten days unless extended, with a hearing on preliminary relief scheduled for November 30. Whether it remained in force depended on later court action.
“For too long, they have violated our laws with impunity. No longer: I am seeking an immediate restraining order and an injunction to restore the rule of law in Louisiana, ” Murrill said in a November 12 announcement.
Key questions and answers
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Why did the DOJ and CFTC sue Arkansas?
They want to stop the state from applying its laws to specified trading on federally regulated exchanges. They argue that the Commodity Exchange Act gives the CFTC authority over those contracts.
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What does Arkansas allege against Kalshi?
The state alleges unlicensed gambling and deceptive claims about the legality and risks of Kalshi’s products. A court has not established that those allegations are true.
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Is Kalshi a defendant in the federal lawsuit?
No. The DOJ and CFTC sued Arkansas and Attorney General Tim Griffin. Kalshi entities are defendants in Arkansas’s separate state case.
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Had the federal court blocked Arkansas?
No ruling had been issued when the federal lawsuit was filed. The agencies’ request for a court order remained unresolved.
What remains unresolved
The federal court must decide whether the Commodity Exchange Act limits Arkansas’s enforcement against the covered contracts and parties. The state court must separately address Arkansas’s allegations against Kalshi, including its consumer-protection claims.
The New Jersey ruling supports the federal argument in one specific, preliminary dispute. It does not settle how Arkansas’s laws apply. The key questions are which laws govern which contracts, what authority states retain, and how far any court orders will reach. Other courts are also considering whether states may enforce gambling laws. Kalshi’s Super Bowl betting contracts have also drawn federal scrutiny.
