The CFTC has ordered Kalshi to keep processing trades for Michigan users despite a state court ruling to cancel them, citing federal jurisdiction.
The Commodity Futures Trading Commission (CFTC) has directed Kalshi, a prediction market platform, to continue processing trades for users in Michigan, despite a recent state court ruling that mandated the cancellation of these trades.
The court's ruling came after Michigan Attorney General Dana Nessel filed a lawsuit against Kalshi, alleging that the platform was engaging in unlicensed sports betting under the pretense of event outcome trading. In June, Judge Rosemary Aquilina issued a temporary prohibition on Kalshi's ability to offer sports-related contracts to Michigan users and mandated the implementation of a third-party geolocation system to comply with state regulations, which could incur a daily fine of $120,000 for non-compliance.
The initial ban was extended to August 12, with a potential increase in fines to $500,000 per day if the company fails to adhere to the order. Following Kalshi's request to modify the injunction, the court stated that specific trades for Michigan must be canceled and refunded.
On July 12, Kalshi sought approval from the CFTC to liquidate affected positions at market value. However, on July 14, the CFTC suspended this emergency action, insisting that the platform must fulfill all pending settlements as normal.
The CFTC believes that Kalshi's contracts are under federal jurisdiction, asserting that no single state can enforce unique conditions on the platform. CFTC Chairman Michael Selig expressed concern that canceling executed trades could disrupt the broader market.
Kalshi's Chief Compliance Officer, Robert Denault, expressed disappointment with the CFTC's decision, stating that the company had already acted to comply with the Michigan court’s orders. He emphasized the difficult position Kalshi faces in balancing state and federal regulatory requirements.
The CFTC has placed a 90-day suspension on the emergency rule, which will include a 30-day public comment period before a final decision is made. Additionally, Kentucky authorities have filed similar lawsuits against Kalshi and Polymarket, alleging unlicensed sports betting activities.
