The legal battles between states and prediction markets show no signs of abating. Montana is the latest state to be sued by Kalshi, following a judge in Arizona blocking the state from pursuing criminal charges against the company.
“Kalshi is a federally designated derivatives exchange, subject to the CFTC’s exclusive jurisdiction,” the company’s latest lawsuit declares for the umpteenth time.
Montana was one of the first states to issue Kalshi with a cease-and-desist letter in March last year. After meeting with company representatives, Montana’s Gambling Control Division (GCD) agreed not to take any further action while its legal case was ongoing in Nevada.
Nevada successfully managed to restrict Kalshi’s markets, at least temporarily, last month. Perhaps emboldened by this, the GCD sent Kalshi another cease-and-desist letter last week.
Second C&D Letter Prompts Lawsuit
In response to the second C&D letter, Kalshi quickly filed a lawsuit against the gambling regulator.
“The April 2026 C&D mischaracterized the clear terms of the parties’ prior agreement, and said that the GCD had ‘conducted an investigation into [Kalshi’s] activities in’ Montana and concluded that they ‘constitute illegal gambling within the meaning of Montana law’,” states Kalshi’s lawsuit.
This was also its response when Connecticut and Tennessee became the latest states to send the demands in December and January, respectively.
“Kalshi faces an immediate threat that Defendants will attempt to enforce Montana’s preempted state laws against it,” claims the filing.
In total, 10 states have sent cease-and-desist orders. The orders have not been successful at halting the platform’s operations, but instead have led to legal battles. The lawsuit filed against Montana means there are now active court cases between Kalshi and state gambling regulators in all those jurisdictions.
Kalshi Strengthened With CFTC in Its Corner
In its lawsuit, Kalshi noted that a judge in Arizona supported the company’s view that its markets are legal under federal law and preempt state gambling regulations.
Arizona took the unprecedented step of filing criminal charges against Kalshi, but Judge Michael Liburdi ordered the state not to bring any enforcement actions for the time being.
Liburdi initially refused to grant Kalshi a temporary restraining order on April 8. However, he was persuaded by the Commodity Futures Trading Commission’s (CFTC) arguments that it holds exclusive jurisdiction over Kalshi’s operations. He granted the TRO on April 10.
“The Court finds that the CFTC has 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 (CEA),” the ruling said.
The CFTC filed lawsuits in Arizona, Connecticut, and Illinois, claiming the states are overstepping their boundaries in pursuing Kalshi and other operators.
Legal Expert: Key Argument Could Defeat Kalshi
The differing judgments from Liburdi within a few days demonstrate the complexity of deciding whether sports prediction markets should be subject to state or federal law.
Daniel Wallach, one of the leading voices on the legal status of prediction markets, claims Arizona can use Rule 40.11(a)(1) in the CEA, which expressly prohibits contracts related to gaming.
“A key argument that Arizona should raise is that the CFTC’s failure to enforce Rule 40.11(a)(1) is contrary to the public interest–a key factor on a motion for preliminary injunction–and therefore requires the denial of the CFTC’s motion,” Wallach stated on LinkedIn.
The CFTC did not mention the rule in its motion for a TRO, which Wallach says should be pounced on by state regulators.
“Risky business for the CFTC to claim the right to enforce federal law vs. states in federal court when it won’t even enforce its own regulations expressly banning ‘gaming’ contracts and then waited nearly one year after Arizona’s cease-and-desist letter to Kalshi before filing suit,” he added.
But as one commenter on Wallach’s post noted, “Unfortunately, it’s not about the law right now. It’s all about politics.”
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The legal battles between states and prediction markets show no signs of abating. Montana is the latest state to be sued by Kalshi, following a judge in Arizona blocking the state from pursuing criminal charges against the company. “Kalshi is a federally designated derivatives exchange, subject to the CFTC’s exclusive jurisdiction,” the company’s latest lawsuit
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