CFTC Sues Utah Over Kalshi Crackdown After State Win - DeFi Rate

The federal complaint requests preliminary and permanent injunctions against Utah's enforcement action, which was filed just six days after Brown sued Kalshi entities and two Susquehanna firms. The state action targets alleged gambling operations across sports, election, political, and cultural contracts, not just markets resembling sportsbook wagers.

Federal vs State Authority

The CFTC argues that Utah's enforcement "threatens to wipe out the operation of CFTC-regulated exchanges within the State." The regulator contends that event contracts are swaps governed by the Commodity Exchange Act, and federal law displaces conflicting state gambling restrictions.

Allowing states to regulate those contracts would leave exchanges facing 'the prospect of 50 regulators across the country,' the CFTC argues.

Utah's Legal Victory

Utah has already secured a federal district court ruling rejecting Kalshi's claim that federal regulation shields its sports contracts from state gambling law. In August, U.S. District Judge Robert J. Shelby granted summary judgment to Utah and closed Kalshi's initial lawsuit.

Kalshi appealed but the Tenth Circuit Court of Appeals denied its request for an emergency injunction while the appeal proceeds. This legal battle represents the third distinct front in Utah's fight against prediction markets.

Broader Regulatory Conflict

Utah's lawsuit seeks to stop contracts across multiple categories and names Kalshi entities and two Susquehanna entities, alleging unlawful gambling, public nuisance, unjust enrichment and civil conspiracy. The state claims Kalshi collected approximately $30.6 million to $61.2 million in fees from Utah users.

Including Susquehanna firms broadens enforcement beyond the exchange to businesses providing market liquidity. Utah becomes the 10th state the CFTC has sued to block enforcement against prediction markets, with the agency securing favorable preliminary injunctions in Arizona, Minnesota and Illinois.

Path to Supreme Court

The dispute has produced conflicting appellate outcomes, with the Third Circuit siding with Kalshi in New Jersey while the Ninth Circuit ruled against it in Nevada. New Jersey is asking the Supreme Court to review the Third Circuit decision, with Kalshi's response due November 9.

Other federal cases in Kentucky and New York are testing the significance of the CFTC's Oct. 9 rulemaking. The wider legal landscape remains divided, with the Supreme Court potentially the final arbiter of this regulatory conflict.