Developing Washington Asked Judge Shelby to Freeze Utah's Kalshi Prosecutions. He Scheduled a Meeting for Next Friday

Editor's note: TrueEdge builds odds tools that include prediction-market prices and earns affiliate commissions from licensed sportsbooks. Our standing position is that states should not criminalise federally registered exchanges. This piece argues about how that fight is going; weigh the conflict.

On Thursday, October 29, the United States and the Commodity Futures Trading Commission asked a federal judge in Salt Lake City to stop Utah from prosecuting Kalshi. The proposed order goes further than a pause. It would bar "continued litigation of any pending criminal or civil enforcement suits" over contracts listed on CFTC-regulated exchanges, block new subpoenas, and require Utah to "either dismiss any applicable enforcement actions or seek stays in those cases until otherwise directed by this Court." Attached as exhibits were the three criminal informations Attorney General Derek Brown filed the day before, against Kalshi, its chief executive Tarek Mansour and its chief operating officer Luana Lopes Lara, 14 counts each.

On Friday, U.S. District Judge Robert J. Shelby answered. He did not grant it or deny it. He set an in-person status and scheduling conference for 1 p.m. on Friday, November 6, and told the government to serve Utah by 5 p.m. on November 3 and file proof by 5 p.m. on November 4, according to RG.org's read of the docket.

That is a routine order. It is also the most informative thing to happen in this case all week.

In Arizona, the same request took a day

The comparison everyone is reaching for is Arizona, and it is the right one. In March, Arizona filed misdemeanor counts against Kalshi in Maricopa County. On April 8, Judge Michael Liburdi refused Kalshi's own request to stop the prosecution, holding that the Anti-Injunction Act barred it. The Justice Department and the CFTC then filed their own motion, and Liburdi granted a temporary restraining order "late Friday afternoon" on April 10, AZFamily reported, finding the CFTC "has clearly shown that it will suffer irreparable harm absent an injunction." An arraignment set for the following Monday did not go ahead.

That is what a temporary restraining order is for: harm that cannot wait for a normal hearing. Liburdi treated it that way. Shelby, given the same kind of motion against a more serious prosecution (felonies rather than misdemeanors, and two executives named personally), has chosen to hear from Utah first, in person, a week out. Nothing about the conference date is a ruling. But a judge who saw an emergency would not have scheduled one for after Tuesday's midterm elections.

The thesis: the federal government changed the plaintiff, not the statute, and Shelby has already told everyone how he reads the statute. The United States is a better litigant than Kalshi in the procedural sense. On the merits it is walking into an opinion written against it.

What Shelby already decided, in his own words

Shelby's August 4 order in KalshiEX LLC v. Cox runs 25 pages and ends with summary judgment for Utah. Its conclusion is plain: "The court concludes the CEA does not preempt Utah's enforcement of its anti-gambling laws against Kalshi." The reasoning is what matters now, because almost none of it depends on who the plaintiff was.

He relied on two parts of the Commodity Exchange Act. The first is the savings clause in section 2(a)(1)(A), which says nothing in that section "shall supersede or limit the jurisdiction conferred on courts of the United States or any State." The second is section 16(e)(2), which lists the specific, limited situations in which the Act displaces state laws that prohibit or regulate gaming. Kalshi argued that 16(e)(2) only covers off-exchange trades. Shelby rejected that: "Section 2(d) specifically states that § 16(e)(2) applies to swaps," and the provision "makes clear that Congress intended States to have the power to regulate its swaps involving gaming except in certain specified situations." On Kalshi's argument that state enforcement frustrates the federal scheme, he wrote: "The court agrees that enforcement of State gambling laws is not inconsistent with the CFTC's regulation and oversight of derivatives markets."

Read that next to the CFTC's own plan. On October 9 the agency proposed a rule that would write event contracts, sports included, expressly into the definition of a swap. The idea is to put Kalshi's products firmly inside federal jurisdiction. In Shelby's reading, calling them swaps does not close the door on state gaming law. It opens one, because 16(e)(2) is a provision about swaps. Whatever the rule does in the Third Circuit, it does not obviously help in this courtroom. The rule is also only proposed, with a 30-day comment window, and the government's complaint leans on it.

The Tenth Circuit has also already refused to stop Utah's enforcement while Kalshi appeals, the Associated Press reported. That leaves Shelby with no signal from above that he got it wrong.

The strongest case that none of this matters

The best counterargument is about the plaintiff, and it is a serious one.

The Anti-Injunction Act, which stopped Kalshi in Arizona, has long been read not to bind the United States; the Supreme Court said so in Leiter Minerals v. United States in 1957. Younger abstention, the doctrine that usually keeps federal judges out of pending state prosecutions, did not stop Liburdi once the government was the one asking. The government is not asking to dodge a prosecution of itself. It is asserting a sovereign interest in its own regulatory scheme, which is a different claim from the one Shelby decided. His August opinion also says, of Kalshi's frustration argument, that "Kalshi has not met its burden of showing otherwise." An agency with its own record, its own interpretation and a statute it administers can try to carry a burden a private company could not. And the precedent that matters most points the government's way: in Arizona, the state prosecution stopped once Washington stepped in. CFTC Chairman Michael Selig said on CNBC on Friday that the agency would take the Utah fight "all the way to the Supreme Court." (CNBC discloses a commercial relationship with Kalshi, including a minority investment.)

We accept the procedural half of that. The government can get through doors Kalshi cannot. But a TRO still needs a likelihood of success on the merits, and the merits question is the same one: does the Commodity Exchange Act preempt Utah's gambling law as applied to these contracts? Shelby has answered it, in a reasoned opinion, by reading the statute's text. A new plaintiff gives him a reason to look again. It does not give him a reason to read section 16(e)(2) differently. Liburdi had not ruled against preemption before the government came to him. Shelby has.

What happens before November 6, and what would prove us wrong

In the meantime, nothing is frozen. The criminal cases are live in state court. We have not found a published date for a first appearance, and we do not know whether Utah will agree to any voluntary pause before the conference. Utah has not filed a response. The government's supporting brief was not on the public RECAP docket as of Friday evening, so we have not read its argument, only the proposed order.

Two outcomes would show this analysis is wrong. If Shelby grants a restraining order at or soon after the November 6 conference, the plaintiff did matter more than the statute, and Arizona will have repeated itself. If he instead sets a briefing schedule that runs for weeks, the felony cases against Mansour and Lopes Lara will keep moving on Utah's timetable, and the licensed operators who left Utah this week will have read the room correctly.

We think the second is more likely. We also think it is the wrong result: a disagreement about what a swap is belongs in a civil courtroom, not a criminal one. Shelby, by his own August reasoning, will not be the judge to say so.

Betting involves risk of loss. If gambling stops being fun, the National Problem Gambling Helpline is 1-800-522-4700.