US and CFTC sue Arkansas to block Kalshi enforcement

What happened

The United States and the Commodity Futures Trading Commission filed a lawsuit on Nov. 12 against Arkansas and Attorney General Tim Griffin in the U.S. District Court for the Eastern District of Arkansas. The complaint asks a federal judge to stop the state's case against prediction market Kalshi. Department of Justice lawyers represent the United States, while CFTC lawyers represent the agency, according to the complaint's signature block.

The federal complaint argues that Kalshi's sports event contracts are swaps under the Commodity Exchange Act, the law that gives the CFTC exclusive jurisdiction over swaps traded on exchanges it oversees. Kalshi operates as a designated contract market, a status the agency approved in 2020. The government seeks a ruling that Arkansas law is preempted as applied to those trades, along with an injunction barring the state from investigating or taking enforcement action against CFTC-regulated firms, their affiliates and partners. CFTC Chairman Michael S. Selig defended the agency's position, saying it would continue to defend its sole jurisdiction over federally regulated markets under the Commodity Exchange Act and oppose state interference.

The action follows Arkansas's own lawsuit against Kalshi Inc. and KalshiEX LLC, filed Nov. 4 in the Circuit Court of Independence County. Arkansas brought claims under its Deceptive Trade Practices Act and for unjust enrichment, describing Kalshi in large part as a gambling platform, according to the federal filing. The state seeks an injunction, restitution, damages, unpaid taxes and civil penalties. Arkansas law allows penalties of up to $10,000 per violation, and the federal complaint says that per-violation approach could reach hundreds of millions of dollars.

Why it matters

The dispute is part of a broader conflict over whether prediction markets should operate under a single federal framework or remain subject to state gambling and consumer-protection rules. A ruling for the federal government would reinforce the CFTC's authority over event contracts traded on registered exchanges; a ruling for Arkansas would support states' efforts to treat sports-related contracts as wagering. The case also intersects with the CFTC's Nov. 5 interpretation of its impartial-access requirements, which gave designated contract markets 30 days to drop domestic geographic restrictions or explain why they cannot. Federal officials argue that shutting out Arkansas residents would force exchanges to violate that guidance.

What the data shows

Key figures in the filings include the $10,000 maximum penalty per violation under Arkansas law; Kalshi's fees of $0.07 to $2.63 per 100 contracts on most trades, as cited by the federal complaint; and the CFTC's 30-day window under its Nov. 5 interpretation. The federal complaint runs 34 pages, according to Bitcoin.com News. It also notes that Kalshi was approved as a designated contract market in 2020.

Background

Federal authorities have brought preemption actions involving 10 other states, including Arizona, Illinois, Minnesota, New York and, as of Oct. 26, Utah, according to the complaint. Bitcoin.com News reported that Arkansas is the 11th state targeted in the campaign, listing Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, Wisconsin and Utah. Courts in Arizona, Illinois and Minnesota have issued preliminary injunctions favoring the federal side, the complaint says. Bitcoin.com News noted that other rulings have favored state regulators. The Illinois ruling, a single Oct. 2 order, resolved three related cases together, including ones brought by the U.S. government and Coinbase Financial Markets, the derivatives unit of Coinbase.

Separately, the CFTC and SEC published a proposal in the Federal Register on Oct. 19 to expressly define event contracts, including those tied to sports, politics, weather and culture, as swaps. The federal complaint says a final rule would give an independent basis for treating the contracts Arkansas is targeting as swaps.

What is still unclear

The core legal question remains unresolved: whether sports-related event contracts are federally regulated swaps or state-regulated gambling products. Courts have reached different results in different states, and the reports do not indicate how the Arkansas federal court will rule on the request for an injunction. The CFTC's pending event-contract rule could also change the analysis if finalized.

What to watch

The federal government is seeking both preliminary and permanent injunctions, so the next major step is the court's response to that request. The CFTC said it has filed supporting briefs in four federal appeals courts and one state supreme court as the nationwide litigation continues. The outcome of the CFTC-SEC rulemaking on event contracts could also affect how the Arkansas case and similar disputes are resolved.

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