CFTC Drops Kalshi Lawsuit amid Internal Turmoil
The Commodity Futures Trading Commission (CFTC) has formally withdrawn its appeal in a legal case against Kalshi in relation to the platform's election prediction markets. It may not, however, impact ongoing legal disputes over its sports markets.
LISTEN TO THIS ARTICLE:The case, which had been ongoing since Kalshi received a favorable ruling in September from the US District Court for the District of Columbia, revolved around whether the platform could legally offer event contracts tied to the outcome of the November 2024 US presidential election. With the CFTC's voluntary dismissal of the appeal on Monday, the September ruling in favor of Kalshi now stands as final.
Related: CFTC Heightens Scrutiny of Election Betting Ahead of Polling DayKalshi had initially faced resistance from the CFTC over its intent to list political event contracts, which the agency previously sought to block on the grounds that they could resemble gambling. However, the court determined that Kalshi's offerings were within the regulatory boundaries established for Designated Contract Markets under federal law. The withdrawal of the appeal means Kalshi can continue operating these contracts under its current structure.
Coinciding with the agency's legal withdrawal, the CFTC posted a brief statement on its official website indicating that certain staff members had been placed on administrative leave. The agency cited potential violations of legal, ethical, or professional standards as the reason for the action, although it did not provide further details regarding the number of individuals involved, the specific nature of the alleged violations, or how long the leave might last. The CFTC stated that internal investigations are ongoing and that updates would be provided as appropriate.
The CFTC's internal challenges come at a time of increased scrutiny over its role in regulating prediction markets, particularly those intersecting with sports events. Just 11 days prior to its court filing, the commission canceled a scheduled April 30 roundtable, which was intended to gather public and industry input on the expanding influence of prediction markets in sectors like sports and politics. The cancellation followed growing legal tensions and public criticism from various stakeholders, including professional sports organizations.
One of the primary concerns among critics is the perceived regulatory gap between federally regulated prediction markets like Kalshi and state-regulated sports betting operators. While sports betting companies must comply with a complex patchwork of state-level laws, including consumer protection and taxation requirements, platforms like Kalshi fall under the federal regulatory framework and are subject to the CFTC's 23 Core Principles. This distinction has sparked debates about fairness, enforcement capacity, and the scope of jurisdiction between federal and state authorities.
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Kalshi Still Involved in Other Lawsuits
There are currently three separate federal lawsuits involving Kalshi and state regulatory bodies, including disputes with Nevada and New Jersey, as well as a joint case involving Crypto.com and Maryland. At the core of these legal proceedings is the question of which regulatory body—state or federal—has primary oversight of markets that may closely resemble traditional betting.
Stakeholders from the sports industry have increasingly expressed concern over the CFTC's ability to manage the expansion of prediction markets. The NBA is one, having recently submitted comments noting that Kalshi's market offerings had expanded rapidly through a self-certification process.
The NBA emphasized that this trend could soon lead to markets based on player performance, officiating decisions, league policies, or player injuries, areas that currently lack a robust, sports-specific regulatory framework. The association warned that the unchecked growth of these markets may compromise the integrity of athletic competition.
The CFTC did not disclose specific reasons for dropping its appeal but indicated in its filing that the dismissal was mutually agreed upon by the parties involved. Kalshi also agreed to waive any future claims it might have had under the Equal Access to Justice Act, related commission rules, or the Small Business Regulatory Enforcement Fairness Act of 1996.
The CFTC also stated on Monday that an undisclosed number of its employees have been placed on administrative leave while an internal investigation is underway. Citing executive directives from the President focused on lawful governance and accountability, the agency said the action was taken due to possible breaches of legal obligations, ethical standards, and professional conduct rules.
The agency didn't provide any details about the investigation. It noted that the investigations are still in progress and that further information will be shared when available.
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