Kalshi sues New York regulators after Crypto.com loses in Nevada

Event contracts platform Kalshi filed a federal lawsuit against New York regulators on Monday, seeking to block the state’s gaming commission from treating its sports prediction markets as illegal games, striking preemptively just weeks after rival Crypto.com lost a similar battle in Nevada.

The Manhattan-based company says federal law preempts state gambling regulations for contracts traded on platforms overseen by the Commodity Futures Trading Commission in its report. deposit.

Kalshi filed the lawsuit after receiving a cease and desist letter from the New York State Gaming Commission on Friday, demanding that she terminate her sporting event contracts or face civil penalties and possible criminal liability.

“In five out of six cases, Kalshi took the initiative and filed suit first because most states require notice before filing suit against companies that engage in repeated and persistent violations of state law,” said Daniel Wallach, founder and principal of Wallach Legal LLC, a law firm specializing in sports betting and gaming law. Decrypt.

That notice became “a warning to Kalshi” to go first to federal court and “narrowly frame the lawsuit” on whether federal law preempts state authority, rather than whether the contracts constitute legal gambling, he added.

By filing the case first, Kalshi avoids state court, where “cases would be about whether these contracts are legal, not about who has jurisdiction,” Wallach explained.

Win some, lose some

Kalshi won preliminary injunctions in New Jersey and Nevada, but lost in Maryland, where a judge ordered him to terminate sporting event contracts. Yet authorities allowed operations to continue until the matter was resolved.

Two weeks ago, U.S. District Judge Andrew P. Gordon of Nevada refused that of Crypto.com request for injunctiona reversal of the same judge who had previously ruled in favor of Kalshi in similar circumstances.

Initially, “Kalshi was able to effectively persuade two courts beforehand that the broad definition of a swap coupled with the exclusive jurisdiction language gives the CFTC exclusive regulatory authority over any contract traded on CFTC-designated exchanges,” Wallach said.

Justice Gordon accepted this argument in Kalshi’s case, focusing simply on whether the contracts could technically be characterized as swaps.

But in the case of Crypto.com, the judge determined that the results of sporting events cannot be treated as an exchange, “because to be an exchange under the Commodity Exchange Act, it depends on the occurrence or non-occurrence of an event,” Wallach explained.

The courts analyzed the issue through congressional intent, he added, and concluded that they did not intend the CFTC’s exclusive jurisdiction over swaps to cover sporting event contracts, citing legislative history and comments from lawmakers.

Crypto.com must geolocate Nevada by November 3 and close all open positions for sporting events for state residents pending its appeal, according to a Nevada gaming control board. notice.

Wallach predicts that Arizona and Illinois, which have issued cease-and-desist letters and warned state-licensed operators against prediction markets, will likely be next to take legal action with Kalshi.

He expects more states to file lawsuits against Kalshi, Robinhood and Crypto.com in the coming months, as recent court rulings have favored the states.

Kalshi and Crypto.com did not immediately respond to Decrypt requests for comments.