Connecticut federal judge rejects Kalshi and Coinbase injunction bids
Regulation3 min read
A federal judge in Connecticut rejected preliminary-injunction requests from Kalshi and Coinbase in separate cases involving sports-event contracts. The court held that the contracts were not covered by the Commodity Exchange Act and that federal law did not displace Connecticut’s gambling rules.
A federal judge in Connecticut rejected requests for preliminary injunctions from Kalshi and Coinbase in separate cases involving sports-event contracts. US District Judge Vernon D. Oliver ruled that Kalshi was not entitled to temporary relief from Connecticut's enforcement efforts.
The court found that sports-event contracts were not covered by the Commodity Exchange Act. It concluded that, even if they were covered, neither the Act nor the federal Commodity Futures Trading Commission's authority displaced Connecticut gambling laws. Oliver rejected the conclusion that the products should be classified as swaps under CFTC authority or that Congress had clearly transferred Connecticut's traditional authority over sports betting to the federal regulator.
Kalshi has maintained that its event contracts are federally regulated and that the Commodity Exchange Act takes precedence over state gambling laws. Connecticut has treated the products as unlicensed sports betting.
Kalshi sued Connecticut Attorney General William Tong and the state's Department of Consumer Protection after the department's Gaming Division sent cease-and-desist orders to Kalshi, Crypto.com and Robinhood. Coinbase brought a separate action against Connecticut and other states around the same time. The state's letters alleged that the platforms offered the equivalent of unlicensed sports betting. They also alleged that the platforms failed to comply with Connecticut's minimum gambling age of 21 and its ban on betting on Connecticut college teams.
Oliver had previously ordered the department not to begin enforcement while the court considered Kalshi's request. That order allowed Kalshi to continue offering sports contracts in the state during the interim period. The court heard oral arguments in February.
Kalshi had suggested it would not offer casino-style contracts, such as one on whether a blackjack player wins a hand, because it would be difficult to argue that they were not gaming. Oliver said Kalshi had not given a principled reason why a combined contract on wins by the Giants and Broncos should differ materially from a casino contract. He said that treating sports-event contracts as swaps under exclusive CFTC jurisdiction could expose state-regulated bookmakers, casinos and licensed online operators to federal legal problems for offering similar products outside a Commodity Exchange Act exchange.
Kalshi has recently lost court cases involving Michigan, Nevada, New York, Utah and Washington. Rulings in Michigan and Nevada reportedly gave Kalshi until 12 August to geoblock access to sports contracts in those states. Coinbase received a similar rejection in Michigan the previous week.
The Third Circuit previously upheld a preliminary injunction in Kalshi's New Jersey case, finding that the company had shown a reasonable chance of success in its argument that the Commodity Exchange Act takes precedence over applicable state laws. The Sixth Circuit Court of Appeals has heard oral arguments in a joint review of opposing federal decisions involving Kalshi in Ohio and Tennessee. During that hearing, Judge Eric Clay reportedly said the Commodity Exchange Act contains no express statement transferring gaming regulation from the states to the federal government.