Leading prediction exchange Kalshi has escalated its legal battle against state-level interference, filing a federal lawsuit in the US District Court for the District of Montana.
The suit seeks an injunction to prevent Montana officials from applying state gambling statutes to the federally regulated exchange, arguing that a recent cease-and-desist order violates a prior agreement.
The Fight Over Federal Preemption
In the lawsuit, Kalshi contends that its event contracts, which allow users to trade on the outcome of economic or political events, fall exclusively under federal derivatives law.
As a designated contract market, Kalshi is regulated by the Commodity Futures Trading Commission (CFTC). The company argues that the Commodity Exchange Act pre-empts Montana’s ability to classify these financial instruments as “illegal gambling.”
Montana officials, however, maintain that risking money on chance-based outcomes constitutes gambling under state law. They have threatened civil and criminal enforcement if Kalshi continues to serve residents, a move Kalshi claims would disrupt operations and produce a “fragmented regulatory environment” that Congress intended to avoid.
National Legal Momentum
The Montana case is influenced by a wave of recent federal court decisions favoring prediction markets:
- Arizona: A judge temporarily blocked criminal charges against Kalshi, citing the CFTC’s exclusive jurisdiction.
- Third Circuit: Recently ruled that federal law pre-empts New Jersey’s gambling laws.
- Nevada & Illinois: Similar stays and lawsuits are currently protecting sports contracts and market access.
Kalshi is seeking both declaratory and injunctive relief, asking the court to affirm that state gambling laws cannot be applied to its federally approved infrastructure.
