In a development that surprises absolutely no one who has ever watched a state legislature defend its gambling monopoly, Utah has filed criminal charges against prediction market Kalshi and its two co-founders. The state's Attorney General, Derek Brown, announced Wednesday that KalshiEX, LLC, CEO Tarek Mansour, and COO Luana Lopes Lara each face 13 felony charges and one misdemeanor for violating Utah's gambling laws. The charges stem from sports bets offered on Kalshi between September 13 and September 24. No arrest warrants were issued; instead, the co-founders received summonses to appear in Third District Court in Salt Lake County. Because nothing says "disruptive fintech" like a court summons.
Kalshi, for its part, is not taking this lying down. In a statement quoted by the Utah News Dispatch, the company called the charges "a crazy overreach" and accused Utah of "clearly playing politics." They vow to fight the charges in court, citing their victory over similar charges in Arizona in May. "We look forward to putting a stop to this in court, just like we did in Arizona," the statement said. Because if at first you don't succeed, sue, sue again.
This criminal case follows a civil lawsuit Utah filed last week seeking to prohibit Kalshi from offering bets on sports, elections, politics, and other events. Attorney General Brown didn't mince words: "Kalshi runs an online casino in Utah and calls it a prediction market. That violates Utah law." He added that Utah is one of only two states where gambling is prohibited under the state constitution. "For 130 years, Utah has been clear: gambling has no place here, and we will enforce our laws." So there.
But wait, there's more. The Trump administration is trying to stop Utah from enforcing its gambling ban against Kalshi, making Utah the 10th state sued by the US Commodity Futures Trading Commission (CFTC). The CFTC filed a lawsuit against Utah on Tuesday to block the state's efforts to shut down CFTC-registered contract markets using state laws. "Utah's effort to restrict the functioning of CFTC-registered exchanges obstructs Congress's decision to federally preempt state law," the commission said. Because nothing says federal supremacy like a lawsuit against a state over sports betting.
If Utah succeeds in shutting down Kalshi, it could spell trouble for Kalshi's chief prediction-market rival, Polymarket, and for sports betting sites like DraftKings and FanDuel, which advertise availability in all US states via a mix of products, including prediction-market platforms in states like Utah. Both are registered with the CFTC. So basically, the entire online gambling-industrial complex is watching this case with bated breath.
The CFTC has already filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. It also filed briefs supporting Kalshi in appeals court cases. CFTC Chairman Michael Selig said, "Utah seeks to shut down prediction markets across a wide variety of markets. Event contracts do not just serve hedging and investment purposes - they also provide the public with information about the outcome of future events." And who doesn't need more information about the outcome of future events? That's basically the entire premise of journalism.
The legal question at the heart of this is whether event contracts offered by prediction markets qualify as swaps under the Commodity Exchange Act (CEA), and whether CFTC jurisdiction over swaps preempts states from applying their gambling laws. The CFTC is suing Utah in the same US district court that previously ruled in Utah's favor. In August, US District Judge Robert Shelby granted Utah's motion for summary judgment and denied Kalshi's motion for a preliminary injunction. Shelby wrote that the federal law relied upon by Kalshi does not preempt Utah's ability to enforce its anti-gambling laws. He noted that US law states CFTC jurisdiction does not "supersede or limit the jurisdiction conferred on courts of the United States or any State" and "explicitly provides for State regulation of its gaming laws in all but a few specified cases." In other words, Congress knew some states don't like gambling, and that's fine.
Kalshi is now appealing its loss to the US Court of Appeals for the Tenth Circuit but was unable to obtain an injunction preventing enforcement of the state gambling ban while that litigation continues. On September 8, Tenth Circuit judges denied Kalshi's emergency motion for an injunction pending appeal. Utah filed its lawsuit seeking a shutdown of Kalshi about six weeks later. Because why wait?
The CFTC lawsuit against Utah makes arguments similar to the ones already rejected by the district court, although some other courts have ruled otherwise. "Utah is not the first State that has attempted to invade the Commission's exclusive jurisdiction over swaps," the CFTC lawsuit said. "Already, several federal courts - including the Third Circuit - have swiftly responded by issuing or affirming temporary restraining orders and preliminary injunctions barring the States from enforcing their gambling laws against CFTC-regulated exchanges that offer sports-related or other event contracts." The Third Circuit ruled that New Jersey cannot regulate sports bets on prediction markets. But Kalshi lost similar cases in the Sixth Circuit and Ninth Circuit in rulings that went in favor of Ohio, Tennessee, and Nevada. So the circuits are split, which means it's probably headed to the Supreme Court. New Jersey has already petitioned the Supreme Court to resolve the split, and 39 other states and the District of Columbia filed a brief supporting New Jersey's petition. Because if there's one thing states love, it's telling the federal government to back off.
So the stage is set for a legal battle royale over whether prediction markets are swaps or casinos, and whether the CFTC or states get to decide. Kalshi's co-founders might want to brush up on their Utah legal code. Or maybe just avoid sports bets in the Beehive State for a while.