DOJ and CFTC Sue Arkansas to Block Enforcement Against Kalshi

The Department of Justice and the Commodity Futures Trading Commission (CFTC) sued the State of Arkansas and its Attorney General, Tim Griffin, on Nov. 12, seeking an injunction to stop the state from pursuing enforcement actions against prediction market Kalshi ¹.

In the complaint filed in the U.S. District Court for the Eastern District of Arkansas, federal authorities argued that Kalshi's sports event contracts qualify as swaps under the Commodity Exchange Act (CEA) ¹. Under federal law, the CFTC holds exclusive regulatory jurisdiction over swaps traded on federally supervised venues, such as designated contract markets (DCMs) ¹. Kalshi received its DCM designation from the CFTC in 2020 ¹. The federal lawsuit seeks a court order declaring Arkansas state law preempted and prohibiting state officials from investigating or prosecuting CFTC-regulated entities and their partners ¹.

Arkansas had previously filed suit against Kalshi Inc. and KalshiEX LLC on Nov. 4 in the Circuit Court of Independence County under the state's Deceptive Trade Practices Act ¹. Attorney General Griffin alleged Kalshi functions as an illegal gambling venue and sought civil penalties of up to $10,000 per violation, in addition to unpaid taxes and restitution ¹. The federal complaint noted that because Kalshi charges transaction fees ranging from $0.07 to $2.63 per 100 contracts, potential state penalties could reach hundreds of millions of dollars ¹. Furthermore, a Nov. 5 CFTC interpretation instructed DCMs to remove domestic geographic restrictions within 30 days or submit justifications, meaning excluding Arkansas residents would cause exchanges to breach federal mandates ¹.

Multi-State Jurisdictional Clash

The Arkansas lawsuit reflects an intensifying federal-state dispute over event wagering. The federal filing identified preemption disputes across 10 other states, including Arizona, Illinois, Minnesota, New York, and Utah, where federal regulators have stepped in against local enforcement ¹. Previously, the CFTC moved against Utah to protect Kalshi under similar jurisdictional arguments ¹. Federal judges in Arizona, Minnesota, and Illinois have already issued preliminary injunctions against state actions, with the Illinois decision resolving consolidated cases that included Coinbase Financial Markets ¹. Additionally, an Oct. 19 joint regulatory proposal by the CFTC and the Securities and Exchange Commission formally classifies sports, political, and cultural event contracts as swaps under federal law ¹.