CFTC Withdraws Appeal in Kalshi Case Involving Political Prediction Markets

The Commodity Futures Trading Commission (CFTC) has taken back its appeal in the court battle against Kalshi, a trading exchange offering prediction markets.

The battle was over whether Kalshi could list event contracts related to the 2024 U.S. presidential election. With the CFTC taking back the appeal, an earlier federal court ruling in Kalshi's favor stands, upholding the legality of election-based contracts under current federal regulations.

Initially, the CFTC resisted Kalshi's attempt to list political event markets because they might be akin to gambling. In September, however, the U.S. District Court for the District of Columbia determined that Kalshi's contracts qualify within the parameters set for Designated Contract Markets by federal law.

By voluntarily withdrawing its appeal, the CFTC concedes that judgment, and Kalshi is clear about moving forward.

In addition to the legal update, the CFTC released a statement revealing that some of its staff had been sent on administrative leave. The disciplinary action resulted from potential breaches of legal, ethical, or professional standards.

The agency refused to mention the number of individuals involved or the nature of the alleged violations. It, however, indicated that internal investigations are ongoing and further information would be released when available.

This internal disagreement comes as the CFTC is being called on to monitor the rapidly expanding prediction market industry more closely. Just days after withdrawing the Kalshi appeal, the commission canceled a roundtable scheduled to explore the growing overlap between prediction markets and traditional sports wagering.

This action, combined with legal pressure and disapproval from sporting organizations, signals growing doubt over the CFTC's regulatory approach.

Regulatory Disparity at Heart of Frustration

One of the most serious issues with critics is the disparity between federally regulated sites such as Kalshi and state-regulated sports betting sites. The latter are subject to strict state legislations, consumer protection, and taxation rules.

Kalshi is subject to the CFTC's federal framework, regulated by 23 Core Principles. Such a regulatory gap has raised questions about fairness, the ability to enforce it, and jurisdiction.

Kalshi remains entangled in other legal battles. It is a party to three federal lawsuits, one in New Jersey and one in Nevada, and a joint lawsuit with Crypto.com in Maryland. The focal point of the lawsuits is the ongoing controversy over whether markets similar to traditional gambling ought to be regulated by state or federal authorities.

The NBA is among the sports leagues that have raised concerns. They warn that the unchecked expansion of prediction markets will soon extend to betting on a player's performance or calls made by referees. They argue that such a development would undermine professional sports integrity if left unregulated.

Additionally, during Super Bowl LIX, the CFTC stepped in to halt Kalshi’s trading contracts with Crypto.com, requiring more input on whether or not they met regulations. 

Though the CFTC did not explicitly announce its decision to drop the Kalshi appeal, the action was described as mutually agreed upon. Kalshi also waived any potential claims for payment under various federal statutes, closing this specific chapter of the war.