Connecticut Judge Says CFTC Cannot Override Court, Denies Kalshi Injunction
The CFTC “lacks the authority to dictate an order that conflicts with this Court’s decision,” according to the denial.
A Connecticut judge has denied Kalshi’s emergency motion for an injunction pending appeal, rejecting the company’s attempt to use the Commodity Futures Trading Commission’s (CFTC) “market emergency” order in New York to shield itself from state gambling enforcement. The court said the regulator lacks the authority to dictate an order that conflicts with the court’s interpretation of federal law.
U.S. District Judge Vernon D. Oliver’s denial comes five days after he ruled that the prediction market’s sports contracts are not swaps and therefore do not fall under the CFTC’s exclusive jurisdiction.
Kalshi had filed the motion in an attempt to block Connecticut officials from enforcing the state’s gambling laws while it appeals the Aug. 10 ruling to the Second Circuit. It alternatively sought short-term administrative relief while the appeals court considers a forthcoming request for an injunction. Oliver denied both requests.
The Aug. 15 ruling also marks the first judicial responses to the CFTC’s extraordinary intervention in Kalshi’s growing legal battles with state regulators.
Judge: State Gambling Law Complements Federal Regulation
Kalshi pointed to the CFTC’s Aug. 11 emergency order as new evidence that complying with state gambling laws conflicts with its obligations as a federally regulated designated contract market (DCM).
Oliver had previously found that Connecticut’s gambling laws complement rather than conflict with federal law. Kalshi argued the CFTC order undermined that conclusion.
The CFTC exercised its emergency authority after New York Attorney General Letitia James filed a lawsuit in state court against Kalshi. James sought to block the company from offering event contracts in the state.
In response, the CFTC declared a “market emergency”, ordering Kalshi to “continue to perform its functions as an exchange in accordance with the CEA’s Core Principles and its normal practices,” even if a New York state court ordered it to stop operating there.
Kalshi argued the order highlighted the conflict between federal and state law. The operator added that the order “literally requires Kalshi to refrain from following state law.”
Oliver was unconvinced.
This argument is not compelling, as it ignores a fundamental holding of the PI Order: that the sports-event contracts in dispute are not swaps subject to the CFTC’s exclusive jurisdiction,” he wrote.
The judge said that the CFTC order ignored both his Connecticut ruling and a decision of the Southern District of New York. Both rulings found that federal law does not preempt state gambling laws as applied to Kalshi’s sports contracts.
Citing a 2024 Supreme Court decision, Oliver said courts must exercise their own judgment when interpreting federal statutes rather than deferring to an administrative agency.
Nothing in the CEA takes away statutory interpretation from the Courts, and as an administrative agency, the CFTC lacks the authority to dictate an order that conflicts with this Court’s decision,” he wrote.
Oliver concluded that the CFTC order did not change his assessment that Kalshi had failed to make the required “strong showing” of success on the merits needed for an injunction pending appeal.
CFTC Order Does Not Establish Irreparable Harm
Oliver also rejected Kalshi’s argument that the CFTC intervention strengthened its claim that it faces irreparable harm without an injunction.
Kalshi argued it could face civil and criminal liability if Connecticut enforces its gambling laws and that ending trading for Connecticut customers could cause economic and reputational harm.
The court had already rejected those arguments in its Aug. 10 ruling. Oliver found that the CFTC order did not materially change the analysis.
The judge noted that the order does not say the CFTC intends to take regulatory action against Kalshi, such as revoking its DCM designation, if the company complies with New York, Connecticut or another state’s laws. Any potential CFTC enforcement against Kalshi, therefore, remains “speculative,” Oliver said.
The judge instead said Connecticut made a “compelling argument” that it, rather than Kalshi, would suffer irreparable harm if the court issued an injunction pending appeal.
He pointed to the state’s interest in regulating gambling. He cited Supreme Court precedent stating that a state suffers irreparable injury when it is prevented from enforcing laws enacted by its representatives.
Connecticut officials had voluntarily refrained from taking enforcement action while Kalshi’s original preliminary injunction request was pending. Oliver said Kalshi had not provided a sufficiently compelling reason to continue restricting the state during the appeal.
https://www.gamblinginsider.com/news/187482/connecticut-kalshi-cftc-emergency-order-injunction