Kalshi acknowledged that its sports event contracts involve gaming, but argued that only the Commodity Futures Trading Commission (CFTC) has jurisdiction to ban them, in a new filing in its lawsuit against the state of Maryland.
In a response filed Monday in the United States District Court for the District of Maryland, Northern Division, Kalshi called on the court to award a preliminary injunction, allowing it to keep offering its sports event contracts in the state.
Kalshi is certified by the federal CFTC as a futures exchange offering “event contracts” on topics like politics as well as the outcomes of sporting events.
Its sport contracts have been controversial, with states including Maryland arguing that they are a form of unlicensed sports betting, rather than a legitimate financial product. Maryland sent Kalshi a cease-and-desist letter requiring it to stop offering these markets in April, but Kalshi sued to allow itself to continue offering those markets.
Kalshi: Congress gave CFTC decision power
In its latest filing, the business notes that federal law says the CFTC “may determine” that contracts are contrary to the public interest if they involve war, terrorism, assassination, illegal activity, or gaming.
This, Kalshi says, means it also has the ability to determine that they are not contrary to the public interest.
“Congress did not ban gaming contracts outright, but instead delegated to the CFTC — not 50 separate states — the authority to approve or reject these contracts after public-interest review,” Kalshi says.
“The question in this case is not whether Kalshi should be subject to regulation, but rather by whom. Congress’s answer is clear: The CFTC has exclusive jurisdiction.”
However, section 40.11 of the CFTC’s own rulebook explicitly reads, “A registered entity shall not list for trading or accept for clearing on or through the registered entity any of the following:
(1) An agreement, contract, transaction, or swap based upon an excluded commodity, as defined in Section 1a(19)(iv) of the Act, that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law.”
Kalshi acknowledges this, but says that a line about enforcement — noting the CFTC “may determine” that contracts with those features should be put up for review and suspended — means the commission has the power to approve these markets on a “case-by-case basis.”
“The CFTC therefore did not, as defendants allege, eliminate its own discretion to evaluate contracts’ compliance with the public interest,” Kalshi argues.
Other courts have granted injunctions
It adds that the rule “unquestionably shows that the CFTC understands itself to possess jurisdiction over these contracts,” and that states do not.
“If Defendants were to bring a suit against the CFTC under the APA (Administrative Procedure Act) challenging the decision not to enforce Section 40.11, that challenge would face its own obstacles,” Kalshi says. “But Defendants go much further, asking this Court to apply a federal law directly against Kalshi that the CFTC has declined to enforce.”
Kalshi cited the fact that the United States District Court for the District of New Jersey and the United States District Court for the District of Nevada have both already granted the business injunctions.
“Defendants offer no reason for this Court to break with that consensus and expose Kalshi to irreparable harm while this case proceeds,” it said.
