Ninth Circuit Ruling Deals Blow to Kalshi’s Federal Preemption Strategy

The Ninth Circuit’s 3-0 decision effectively dissolves an injunction that had shielded Kalshi from Nevada regulators. Writing for the panel, Judge Ryan Nelson dismissed the firm's claim that federal jurisdiction under the Commodity Exchange Act should displace state gaming laws, stating that the CFTC is not a national gambling regulator. The court found that Kalshi’s broad interpretation of what constitutes a swap contract lacked a credible limiting principle, returning the case to district court for further proceedings.

While the ruling does not explicitly invalidate the CFTC’s pending proposal to tighten oversight on event contracts, it introduces significant legal friction. The opinion invokes the major-questions doctrine, suggesting that the commission may lack the statutory authority to regulate these markets as broadly as it intends. Legal experts remain divided on the fallout; some suggest this signals the end of the commission’s current rulemaking efforts, while others, including Ripple CTO emeritus David Schwartz, argue that a federal framework for exchange-traded contracts can coexist with state-regulated sportsbooks.

This decision creates a direct circuit split, as the Third Circuit previously reached a conflicting conclusion regarding Kalshi’s dispute with New Jersey. This disagreement increases the likelihood of a Supreme Court intervention to resolve whether prediction markets fall under federal derivatives law or state gaming statutes. Meanwhile, the CFTC continues to weigh public comments on its June proposal, which aims to implement 90-day reviews for contracts involving gaming and other restricted activities.