Federal Judge Blocks Arizona's Criminal Case Against Kalshi — What the Preliminary Injunction Means

A federal judge in Phoenix handed the CFTC a decisive win on May 5, 2026, converting the temporary restraining order that had paused Arizona's criminal prosecution of Kalshi into a more durable preliminary injunction. The court found that federal law preempts Arizona's attempt to regulate CFTC-licensed derivatives markets as illegal gambling — a ruling that has immediate consequences for Kalshi users in Arizona and sends a clear message to every state that has challenged the platform.

The Arizona case has been the most dramatic front in the nationwide state-vs-CFTC jurisdictional fight: it was the first state to file criminal charges against a prediction market. Yesterday's ruling marks the first time a district court has granted the CFTC a preliminary injunction — not just a temporary pause — blocking state criminal enforcement against a CFTC-regulated exchange.

Here's the full story.

How Arizona Got Here: From Cease-and-Desist to Criminal Charges

The conflict between Arizona and Kalshi started long before the criminal charges. In May 2025, the Arizona Department of Gaming sent Kalshi a cease-and-desist letter demanding the company stop offering event contracts in the state. Arizona's position: sports event contracts are functionally identical to sports betting, which requires a state license.

Kalshi disagreed. The company operates under a Designated Contract Market (DCM) license and Derivatives Clearing Organization (DCO) registration from the Commodity Futures Trading Commission. Its position, shared by the CFTC, is that sports event contracts are "swaps" under the Commodity Exchange Act — federal financial instruments subject to exclusive CFTC jurisdiction, not state gambling law.

In March 2026, Arizona escalated dramatically. Attorney General Kris Mayes filed 20 misdemeanor charges against KalshiEX LLC and Kalshi Trading LLC, alleging the company operated an unlicensed wagering business and allowed users to bet on Arizona elections — a practice the state expressly prohibits. "Kalshi may brand itself as a 'prediction market,' but what it's actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law," Mayes said in a press release from the Arizona AG's office. "No company gets to decide for itself which laws to follow."

It was the first-ever criminal prosecution of a CFTC-regulated prediction market platform.

Why Kalshi Couldn't Stop Arizona Itself — The Anti-Injunction Act

Kalshi had preemptively sued Arizona in federal court on March 12, 2026, seeking its own injunction to halt the prosecution. Judge Michael T. Liburdi of the U.S. District Court for the District of Arizona denied that request on April 9, citing the Anti-Injunction Act.

The AIA is a federal statute that generally prohibits federal courts from issuing injunctions that interfere with pending state court proceedings. Judge Liburdi found the Act applied to Kalshi's request. "The Court finds that the AIA applies and the preliminary injunction Kalshi requests does not fall within any exception to the application of the AIA. The Court is barred by statute from issuing the injunction, so it must deny Kalshi's requests for preliminary relief," he wrote.

Critically, however, the AIA has one relevant exception: it does not block injunctions sought by the United States government. That opened the door for the CFTC.

The CFTC Steps In: From Temporary Restraining Order to Preliminary Injunction

On April 9 — the same day the court denied Kalshi's request — the CFTC filed its own motion for a temporary restraining order and preliminary injunction. "Arizona's decision to weaponize preempted state criminal law against companies that comply with a comprehensive federal regime sets a dangerous precedent," CFTC Chairman Michael S. Selig said in the agency's press release (CFTC PR 9208-26). "The CFTC is committed to vigorously defending its exclusive authority over prediction markets."

On April 10, Judge Liburdi granted the CFTC's TRO. The order blocked Arizona from pursuing any criminal or civil enforcement actions related to event contracts listed on CFTC-regulated designated contract markets. The court found the CFTC had made "a clear showing that it is likely to succeed on the merits of its claim that Arizona's gambling laws are preempted by the Commodity Exchange Act" (CFTC PR 9211-26).

The TRO was a temporary measure. It expired once the court could take up the CFTC's full preliminary injunction motion — which happened on May 5.

What the Court Said: Federal Preemption Is the Law

In granting the preliminary injunction on May 5, Judge Liburdi was explicit about his legal reasoning. The court's order, recorded as Document 96 in the CourtListener docket for KalshiEX LLC v. Johnson, No. 2:26-cv-01715, dissolved the TRO and formally granted the CFTC's preliminary injunction.

Two passages from the order define the ruling's significance.

First, on the preemption question: "The Court concludes that federal law preempts state gambling laws insofar as they seek to regulate derivatives exchanged on markets regulated by the CFTC."

Second, on Congress's intent: "Every time Congress has revisited the federal-state allocation of authority in this area, it has chosen to expand federal control. It has done so while expressing unease about the costs of state-by-state regulation." And: "The result would be the inconsistent regulatory patchwork that Congress intended to avoid. Because Arizona's gambling laws stand as an obstacle to federal regulation, those laws are preempted."

The ruling was sweeping in its logic: it doesn't just apply to Kalshi — it applies to any CFTC-regulated designated contract market operating in Arizona. Arizona cannot use state gambling law to block, charge, or regulate any company trading event contracts on a federally licensed exchange.

CFTC Chair Selig immediately celebrated on X: "I applaud today's action by Arizona's District Judge, which reaffirms what we all know: the CFTC has full jurisdiction over prediction markets. We'll keep pursuing action against any state that infringes on our statutory authority."

Preliminary vs. Permanent — What the Distinction Means

Multiple outlets have described this ruling as a "permanent" injunction. That's inaccurate. The court issued a preliminary injunction, not a permanent one.

The distinction matters legally. A preliminary injunction requires the moving party (here, the CFTC) to show: (1) likelihood of success on the merits, (2) likelihood of irreparable harm, (3) balance of equities in their favor, and (4) that the injunction is in the public interest. Judge Liburdi found all four factors favor the CFTC.

A permanent injunction requires full adjudication on the merits — a final judgment after a complete trial. The Arizona case hasn't reached that stage. A preliminary injunction is durable but not final: Arizona can appeal, and the underlying merits will eventually be decided.

In practice for Kalshi users, the difference is less important right now: the preliminary injunction fully blocks Arizona from enforcing its gambling laws against CFTC-regulated markets. Kalshi can operate in Arizona while the appeal plays out.

The Broader Battle Map

Arizona is one front in a multi-state war. As of May 2026, the nationwide picture is:

CFTC wins (injunctions blocking state enforcement):

• Arizona: CFTC preliminary injunction granted May 5, 2026
• Tennessee: Federal court granted Kalshi preliminary injunction February 19, 2026 — found sports event contracts are likely swaps under CEA (KalshiEX LLC v. Orgel, M.D. Tenn.)
• New Jersey: District court granted Kalshi injunction; Third Circuit affirmed April 6, 2026 (KalshiEX LLC v. Flaherty, No. 25-1922)

State wins (restrictions still in effect):

• Nevada: Ninth Circuit denied Kalshi's stay request; users barred from sports contracts
• Massachusetts: State court injunction blocking sports contracts; now before Massachusetts Supreme Judicial Court (argument held May 4, 2026)
• Ohio: Federal court denied Kalshi's preliminary injunction; ordered compliance with state gambling laws

Other active fronts:

• CFTC has filed lawsuits against Connecticut, Illinois, New York, and Wisconsin seeking declaratory judgments that federal law preempts state enforcement
• Multiple state attorneys general filed amicus briefs in CFTC rulemaking opposing the agency's position
• Federal legislation pending: Young-Slotkin bill, Gillibrand-McCormick Prediction Markets Act

The Third Circuit's April 6 ruling in the New Jersey case is the strongest appellate precedent for Kalshi's position — a 2-1 decision finding federal preemption. The Ninth Circuit has been more skeptical, and oral arguments in consolidated California/Nevada cases created a potential circuit split that could eventually reach the Supreme Court.

What This Means for Arizona Traders

For Kalshi users based in Arizona, the preliminary injunction means the platform can continue operating in the state while the legal dispute is resolved. The criminal charges against Kalshi are blocked at the district court level.

That doesn't mean the situation is permanent. Arizona's AG office said after the ruling that it "continues to evaluate our legal options related to the case." The state is widely expected to appeal to the Ninth Circuit — the same court that has been skeptical of Kalshi's preemption arguments in the Nevada and California contexts.

If Arizona appeals and the Ninth Circuit sides with the state, a circuit split with the Third Circuit would be near-certain, accelerating pressure for Supreme Court review.

Kalshi users in Arizona should know: as of today, all contracts — including sports event contracts and election contracts — are accessible. That access depends on the preliminary injunction remaining in place through any appeal.

FAQ

Q: Did the court permanently block Arizona's case against Kalshi? No. The court granted a preliminary injunction, not a permanent injunction. A preliminary injunction requires showing likelihood of success on the merits and other factors — which the court found met. A permanent injunction requires a final judgment after full trial. Arizona can still appeal.

Q: Why could the CFTC get an injunction when Kalshi couldn't? The Anti-Injunction Act generally bars federal courts from stopping pending state criminal proceedings. However, it contains an exception for injunctions sought by the United States government. Because the CFTC is a federal agency, it qualified for the exception. Kalshi, as a private company, did not.

Q: What does federal preemption mean for prediction market users? Federal preemption means federal law supersedes conflicting state law. When a platform is licensed by the CFTC as a designated contract market, the court found that the Commodity Exchange Act gives the CFTC exclusive jurisdiction — and state gambling laws cannot override that framework for federally regulated instruments.

Q: Does this ruling apply to other prediction market platforms? The order applies to event contracts listed on any CFTC-regulated designated contract market — not just Kalshi. Other DCMs like Robinhood Derivatives (which routes through Kalshi) and ForecastEx (Interactive Brokers' platform) would also benefit from this preemption finding in Arizona, though each platform's legal exposure is distinct.

Q: What happens next in Arizona? Arizona is expected to appeal to the U.S. Court of Appeals for the Ninth Circuit. The underlying merits case — whether federal law permanently preempts Arizona's gambling statutes — continues at the district court level. Kalshi's original lawsuit sought a permanent injunction, which would require a full trial on the merits.

Conclusion

The Arizona preliminary injunction is a significant win for the CFTC's position that federal law preempts state attempts to regulate CFTC-licensed prediction markets as gambling. The court's preemption language — particularly the "inconsistent regulatory patchwork that Congress intended to avoid" framing — is now in the record and available to every other court handling similar disputes.

But the fight isn't over. Arizona will almost certainly appeal. The Ninth Circuit has been the skeptical venue throughout this battle. And unless and until a final merits judgment — or Supreme Court intervention — settles the preemption question permanently, prediction market users in contested states remain in a shifting legal landscape that could change with each appellate decision.

The best way to track current platform availability by state: check platform-specific help centers and look for official court order updates, not news coverage, which often mischaracterizes the legal stage (preliminary vs. permanent, TRO vs. PI).

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Sources & Verification

• Court order — KalshiEX LLC v. Johnson, No. 2:26-cv-01715, Doc. 96: CourtListener docket — CFTC preliminary injunction granted, TRO dissolved, signed by Judge Michael T. Liburdi on 5/5/2026
• CFTC seeks Arizona injunction (PR 9208-26): CFTC press release, April 9, 2026
• TRO granted (PR 9211-26): CFTC press release, April 10, 2026 — CFTC Chair Selig quote
• CFTC sues Arizona, Connecticut, Illinois (PR 9206-26): CFTC press release, April 2, 2026
• CFTC sues Wisconsin (PR 9220-26, references Arizona TRO): CFTC press release, April 28, 2026
• Arizona AG criminal charges: Arizona AG press release, March 17, 2026 — Mayes quote
• Third Circuit No. 25-1922 affirming New Jersey PI: Third Circuit opinion, April 6, 2026