Arizona charges Kalshi with criminal misdemeanors, alleging illegal gambling

Arizona’s attorney general filed misdemeanor charges against Kalshi, accusing the prediction platform of running an illegal gambling and election betting operation in the state.

Although these are the first criminal complaints filed against Kalshi, the company has been involved in numerous lawsuits and investigations and has received dozens of cease and desist letters across the country.

Prediction platforms like Kalshi draw comparisons to online sports gambling, as they allow users to bet on the outcomes of events in popular culture, politics, sports and more.

Many states have argued that legalizing and regulating sports betting is within the purview of local regulators and outside the jurisdiction of the Commodity Futures Trading Commission, which regulates event contracts and prediction markets.

States including Michigan and Massachusetts have filed civil lawsuits aimed at shutting down operations or forcing Kalshi to meet gambling license requirements.

In the Arizona filing, Attorney General Kris Mayes accused Kalshi of accepting various bets in Arizona without a license, including bets on state elections, which are separate and expressly prohibited under Arizona law.

“No company can decide which laws to follow,” Mayes said in a statement.

Kalshi distinguishes between the event contracts he offers and those offered by sports betting sites and casinos.

“Unfortunately, a state can file criminal charges with paper-thin allegations,” the company said in a statement to CNBC. “States like Arizona want to individually regulate a nationwide financial exchange and are trying every trick in the book to do so. As other courts have acknowledged and the CFTC has confirmed, Kalshi is subject to federal jurisdiction.”

Last week, Kalshi sought an injunction to block Arizona from enforcing the state’s law.

On Tuesday, federal judge Michael Liburdi denied Kalshi’s request for a temporary restraining order and ordered Kalshi to show why the case should be heard in federal court, given the state’s charges against Kalshi.

Kalshi preemptively filed suit to prevent other states from taking punitive actions; One strategy Mayes describes as bullying states is “running to federal court to avoid liability.”

Gaming lawyer Daniel Wallach meticulously follows lawsuits and countersuits filed against prediction platforms. He described preventive litigation as Kalshi’s modus operandi.

“The ‘win the race to the courthouse’ strategy has proven to be an effective tactic so far,” Wallach said, pointing to Kalshi’s legal victories in obtaining injunctions in New Jersey and Tennessee.

Wallach is not involved in any of Kalshi’s legal disputes.

Still, the Arizona attorney general’s office emphasized that Kalshi had recently lost to Ohio due to an injunction. federal judge Sarah Morrison He said Kalshi’s concerns were “dwarfed by Ohio’s interest in exercising its police power, enforcing properly enacted laws, and regulating sports gambling to promote the public welfare.”

CFTC Chairman Michael Selig recently told CNBC that the agency would want prediction platforms, which currently self-certify, to do a better job of restricting event contracts that encourage manipulation, such as questions about whether an athlete will get injured.

A bipartisan bill A bill has been introduced in the House of Representatives that would ban sports-related event contracts unless a state specifically allows it. The bill would also completely ban prediction markets regarding elections and government actions.

As lawmakers, regulators and courts struggle to define what gambling is, 61% of Americans say they view activity contracts in prediction markets as more like gambling than investing. A survey released Tuesday By Ipsos and the American Institute for Boys and Men.

Disclosure: CNBC and Kalshi have a business relationship that includes a minority investment in CNBC.