Kalshi filed a lawsuit against the Maryland Lottery and Gaming Control Commission on Monday night in response to the state regulator’s recent cease-and-desist letter. Maryland ordered Kalshi to stop offering its sports contracts, accusing the CFTC-regulated prediction market company of violating the state’s sports betting law.
Kalshi has countered that it is federally regulated, so state gambling regulators have no authority over its event contracts. The company is asking for a temporary restraining order to prevent Maryland from penalizing Kalshi for not removing its markets before the lawsuit plays out. Based on Nevada’s case, Kalshi may get what it’s asking for.
On April 9, a federal judge allowed Kalshi to continue offering its sports and election contracts against Nevada gaming regulators’ wishes. The judge argued that the CFTC or Congress had to resolve the conflict between federal financial regulations and state gambling law. While Kalshi was “proceeding at its own risk and creating its own harms,” the question over state law’s applicability in this case was “beyond the jurisdiction of this court,” the judge wrote in his written order.
Kalshi leaned on that argument in its Maryland brief, but other potential traps lie in some of its legal arguments.
Public interest review raises uncomfortable questions
In applying for preliminary injunctive relief, requesting to maintain the status quo before a court rules on a case, Kalshi must prove it is within the public interest for its contracts to remain available to Marylanders. Sports betting attorney Daniel Wallach noted on LinkedIn:
“A ‘public interest’ analysis is central to any request for preliminary injunctive relief – it is one of the four elements that a moving party must establish before it can get such relief…if there is any government institution which ‘failed to follow the law,’ it would be the CFTC, which failed to enforce its own regulation – Rule 40.11(a)(1).”
Rule 40.11 prohibits event contracts involving “gaming.” Wallach notes that the CFTC unanimously approved that rule through a formal rulemaking process “over a decade ago.” Finding that event contracts involving gaming is contrary to the public interest through a unanimous vote could strengthen Maryland’s case.
However, it isn’t the only legal provision states could have working in their favor.
New Jersey argues states have a role
Kalshi has also sued New Jersey over a similar cease and desist order from the state’s gaming regulators. New Jersey also cited its state sports betting law as a reason to prohibit Kalshi’s sports contracts. However, New Jersey regulators brought up an additional point.
New Jersey’s brief argued that the Commodities Exchange Act (CEA) didn’t prevent states from enforcing their gambling laws. Regulators argued that because state law informed the CFTC’s definition of “gaming,” that states should play a role in drawing the line between financial contracts and gambling.
Kalshi may win its cases based on federal preemption. However, states are likely to turn their sights on the CFTC if Kalshi prevails in this round.
