In the latest development of the ongoing legal battle between prediction market platform Kalshi and the U.S. Commodity Futures Trading Commission (CFTC), Kalshi has fired back at the regulator, asserting that only Congress holds the authority to ban election betting contracts. The bold claim came in a court filing submitted by Kalshi on Friday as part of its appeal against the CFTC’s attempts to block the platform from offering markets that allow traders to bet on the outcomes of U.S. elections.
CFTC’s “Goldilocks” Definition of Gaming Challenged
Kalshi’s filing criticized the CFTC for concocting a “Goldilocks definition of ‘gaming'” that would encompass elections as an “arbitrary outcome-oriented manipulation with no grounding in the statute” in its defense against the regulator’s move to prohibit the platform’s election-based prediction markets. The company argued that the CFTC overstepped its statutory authority and violated the Administrative Procedure Act (APA) when it attempted to block these contracts.
Lower Courts Side with Kalshi
The ongoing legal saga began in September 2022 when the CFTC tried to prevent Kalshi from listing specific event contracts that allowed traders to wager on which political party would control the House or Senate after the November elections. The regulator contended that Kalshi’s proposed contracts constituted “gaming” and “activity that is unlawful under state or federal law,” thus being “contrary to the public interest.”
Kalshi promptly sued the CFTC in the District of Columbia, claiming that the agency had exceeded its authority. District Court Judge Zia Qoub sided with Kalshi, deeming the CFTC’s interpretation of the Commodity Exchange Act (CEA) “too broad” and vacating the agency’s order blocking the contracts. The CFTC’s subsequent attempts to secure an emergency injunction from both the district and appeals courts were denied.
CFTC Appeals as It Seeks to Expand Gaming Definition
Now, the CFTC is formally appealing Judge Qoub’s decision, coinciding with the regulator’s efforts to broaden the definition of gaming to include “political contests”—a move that would effectively ban election betting. In response, Kalshi’s Friday filing reiterated the arguments it presented to the lower courts, urging the appeals court to affirm Judge Qoub’s ruling.
“In short, the Commission’s decision to prohibit Kalshi’s contracts exceeded its lawful authority. Congress can choose to add ‘elections’ to the [Commodity Exchange Act]’s enumerated list of activity and thereby empower the CFTC to ban election prediction markets. But Congress has not done so. As such, this Court should affirm the district court’s decision.”
– Kalshi’s legal counsel
Battle Lines Drawn as Legal Showdown Continues
The CFTC’s response to Kalshi’s brief is due by December 6th, setting the stage for the next round in this high-stakes legal showdown that could have far-reaching implications for the future of prediction markets and the scope of the CFTC’s regulatory authority. As the battle lines are drawn, industry observers and legal experts alike will be closely watching to see how the appeals court ultimately rules on this critical question of who holds the power to govern election betting in the United States.
With the integrity of financial markets, free speech rights, and the separation of powers between the legislative and executive branches all in play, the outcome of this case could resonate far beyond the immediate fate of Kalshi’s election contracts. As the legal drama unfolds, one thing is certain: the final decision will have profound consequences for the intersection of politics, prediction markets, and the ever-evolving landscape of regulatory oversight in the digital age.
