“Therefore, the presumption against preemption applies to this case, and the Court must analyze whether Kalshi has demonstrated that it was a “clear and manifest purpose of Congress” to prevent a New York DCM like Kalshi’s power to regulate gambling by offering sports-event contracts on its platform through the enactment of the CEA.”
There is no clear intent to preempt Congress
Torres sees no clear intention from Congress to block New York’s gambling laws. While the CEA gives the CFTC exclusive jurisdiction over swaps transactions in the DCM, it states that this authority “in no way supersedes or limits the jurisdiction … granted to other regulatory authorities under the laws of the United States or any State.”
“This provision evidences Congress’s intent to leave room for states to regulate certain activities otherwise covered by the CEA… Moreover, given that the power to regulate gambling is a traditional police power exercised by New York, the Court also declines to construe the CEA’s grant of exclusive jurisdiction.
Torres wrote that Congress prohibited states from applying gambling laws to swaps under certain limited circumstances and similarly prohibited state regulation of swaps in insurance contracts and other contexts. Those provisions demonstrate “the extent of Congress’s intended preemption” and prove that “Congress did not intend to regulate all state gambling laws so broadly as to exclude transactions involving swaps,” he said.
According to Torres, Kalshi has not shown that enforcement of New York’s gambling laws would prevent the federal government from achieving the purposes of the Commodity Exchange Act. “Kalshi has not shown that it was impossible to comply with both New York’s gambling laws and the CEA,” he said.
The legal battle over state regulation of prediction markets continues in various US district courts and circuit courts of appeals. In another lawsuit filed by Kalshi, the 3rd US Circuit Court of Appeals ruled In April, New Jersey cannot regulate sports betting on prediction markets.
Kalshi lost several other important decisions, including the 6th Circuit Court of Appeals judgment judges declined to grant preliminary injunction against Ohio gambling laws. The conflicting rulings in the circuit courts of appeals raise the possibility that the Supreme Court will eventually determine where federal jurisdiction ends and state authority begins when it comes to prediction markets.
