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- A federal court has denied Kalshi’s request for a preliminary injunction in Connecticut
- Kalshi levied a lawsuit against the Connecticut Department of Consumer Protection earlier this year
- The court found Kalshi’s sports event contracts do not satisfy the statutory definition of a swap under the Commodity Exchange Act
U.S. District Court District of Connecticut has denied Kalshi’s motion for a preliminary injunction in Connecticut, which now clears the way for the state to enforce its gambling laws against the prediction market operator.
District of Connecticut Judge Vernon D. Oliver today denied Kalshi’s motion for a preliminary injunction, noting that sports event contracts do not satisfy the statutory definition of a swap under the Commodity Exchange Act (CEA).
“Kalshi’s sports-event contracts fail to satisfy this portion of the statutory definition of a swap because they do not depend on whether an underlying sporting event occurs, fails to occur, or occurs to a particular extent. Instead, Kalshi’s sports-event contracts depend on the event’s outcomes or discrete in-game occurrences. Treating those outcomes as separate ‘events’ would depart from the ordinary meaning of the term. Thus, Kalshi’s sports-event contracts do not fall within § 1a(47)(A)(ii),” Oliver wrote in his decision.
Preliminary Injunction Denied
Judge Oliver reported in his conclusion that “Kalshi itself has touted its platform as offering legal sports betting nationwide,” but sports betting has traditionally been subject to state regulation.
“The Court declines to conclude either that these sports wagers are properly categorized as swaps and fall under the CFTC’s authority, or that Congress clearly displaced Connecticut’s traditional authority to regulate sports wagering and vested that authority in the CFTC, an agency that has not historically regulated sports wagering and has not exercised meaningful oversight over Kalshi’s sports event contracts,” he wrote.
Judge Oliver also noted that Kalshi has not demonstrated that it is likely to succeed on the merits of defining its sports event contracts as swaps or whether Connecticut gambling laws are preempted by federal law.
A Kalshi spokesperson told Sports Betting Dime the company will be exploring all legal options moving forward.
“We respectfully disagree with the Court’s decision and are considering all legal options.”
Kalshi Levied Lawsuit in December
Kalshi levied a lawsuit in U.S. District Court against the Connecticut Department of Consumer Protection and its director, Kristofer Gilman, requesting a preliminary and permanent injunction against the state after receiving a cease-and-desist notice from the state earlier this year.
“The Connecticut Department of Consumer Protection seeks to prevent Plaintiff KalshiEX LLC (“Kalshi”) from offering event contracts for trading on its federally regulated exchange. It does so by threatening Kalshi with imminent criminal and civil penalties for offering these contracts. Connecticut’s attempt to regulate Kalshi intrudes upon the federal regulatory framework that Congress established for regulating derivatives on designated exchanges,” counsel for Kalshi wrote in the lawsuit.
The Connecticut Department of Consumer Protection Gaming Division issued cease-and-desist notices to Kalshi, Robinhood, and Crypto.com for their prediction market services, namely sports event contracts, reporting that all three platforms are offering sports wagers in violation of state law and without license.
The cease-and-desist notices were filed on Tuesday, Dec. 2. Kalshi filed its lawsuit against the Department of Consumer Protection on Wednesday, Dec. 3.
The lawsuit claims the Connecticut Department of Consumer Protection seeks to prohibit Kalshi from offering sports event contracts within the state, despite federal laws permitting the contracts and Kalshi being a federally-designated derivatives exchange.
“It offers consumers the chance to invest in many types of event contracts, including, as relevant here, sports-outcome contracts. These contracts are subject to extensive oversight by the CFTC, and—critically—they are lawful under federal law. Earlier this year, the CFTC allowed Kalshi’s sports-outcome contracts to take effect without review,” counsel noted in the lawsuit.