A federal judge has denied a request from prediction market operator Kalshi to bar Arizona prosecutors from moving forward with a criminal case, alleging the company is operating an illegal betting platform in the state.
In a decision Wednesday, U.S. District Judge Michael Liburdi also denied Kalshi’s request for a ruling saying federal law trumps Arizona’s gambling laws. Liburdi said it’s too early in the case for him to rule on that issue.
The Arizona Attorney General’s Office has charged Kalshi with 20 misdemeanor counts of wagering, alleging that the company accepted bets on political outcomes, college sports and individual player performance.
Arizona, the first state to file criminal charges against Kalshi, prohibits operating an unlicensed wagering business and betting on elections. The criminal charges mark a new front in a high-stakes legal battle over whether prediction markets should be subject to the same rules as gambling operations.
The Associated Press emailed Kalshi seeking comment on the decision. Attorney General Kris Mayes’ office declined to comment on Thursday.
An arraignment is scheduled Monday for Kalshi in Maricopa County Superior Court. The criminal case is being heard in county court because the company is charged with state criminal violations.
Kalshi, which maintains it’s a financial marketplace rather than a gambling operation, is pressing its civil claims in federal court, arguing that it should only have to answer to the U.S. Commodity Futures Trading Commission, not the state of Arizona.
Kalshi operates by allowing customers to buy and sell “Yes” or “No” contracts tied to the probable outcome of an event. It has said its product is different from gambling operations because Kalshi’s customers engage in “swaps” between one another instead of betting against the “house.”
In a lawsuit filed by Kalshi just days before prosecutors leveled the criminal charges, the company argued federal law trumps Arizona’s efforts to subject it to state statute. It also contends that shutting down its ability to offer event contracts would threaten its viability, undermine confidence in the integrity of its platform and cause other problems for the business.
The company said Arizona filed the charges to interfere with its lawsuit.
Lawyers for the state contend Kalshi has marketed itself as a platform for sports and election betting and Arizona should be able to enforce its gambling laws to hold Kalshi accountable for flouting state law.
Kalshi sued Arizona, Utah and Iowa in attempts to stop anticipated state actions against the platform. Other states have taken some form of legal action against Kalshi.
So far, the outcomes have been mixed. Federal and state judges in Nevada and Massachusetts, respectively, issued early rulings in favor of states looking to ban Kalshi and its competitor Polymarket from offering sports betting in their states. Elsewhere, federal judges in New Jersey and Tennessee have ruled in favor of Kalshi.
Earlier this month, the federal government filed lawsuits against Connecticut, Arizona and Illinois challenging the states’ efforts to regulate prediction market operators.
The Trump administration has so far backed the platforms.
President Donald Trump’s eldest son is an adviser for both Kalshi and Polymarket and an investor in the latter. Trump’s social media platform Truth Social also is launching its own cryptocurrency-based prediction market called Truth Predict.
