Developing Kalshi Lost Twice in Federal Appeals Courts in Two Days. Arkansas Then Filed the Kind of Case States Should Be Bringing.

Editor's note: this is labelled commentary. 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. Weigh the conflict.

On Tuesday, hours after hearing argument, a Second Circuit panel denied Kalshi and Coinbase injunctions against New York and Connecticut in one sentence: the "motions are DENIED because Appellants have failed to make the required showing." On Wednesday, the Ninth Circuit refused to rehear its Nevada ruling, noting that "no judge has requested a vote" for the full court. Also on Wednesday, Arkansas Attorney General Tim Griffin sued Kalshi in Independence County Circuit Court.

Kalshi's federal argument has had a bad week. We still think Utah is wrong to charge founders with felonies. But honesty requires saying two things that do not flatter the side we usually take: the swap theory is losing momentum, and Arkansas has brought the kind of case that a state with a real grievance ought to bring.

How little and how much the two orders say

Neither order decides anything new on the merits, and readers should discount any headline that says otherwise. The Second Circuit order gives no reasons, and the Ninth Circuit's simply leaves its August ruling in place. The appeals from New York and Connecticut remain pending, with Judges John Walker Jr., Joseph Bianco and Dennis Jacobs on the panel.

The argument was more revealing than the order. "I don't see how sports betting in its entirety is a swap," Walker said, according to InGame. "It feels like we're trying to fit a square peg into a round hole here," said Bianco. Oral-argument remarks predict poorly, and Walker also asked whether New York might simply pause enforcement, which suggests the panel is not eager to see these products banned overnight. Still, the CFTC was in the room, granted argument time as a friend of the court, and those were the questions it got.

The Ninth Circuit's denial matters for its clock. CDC Gaming reports Kalshi has 90 days to petition the Supreme Court, which by our count from November 4 runs to about February 2, 2027, unless extended. The scoreboard at the appellate level now has the Ninth and Sixth Circuits for the states and the Third Circuit for Kalshi, with a Second Circuit panel sounding sceptical. In the New Jersey case, Flaherty v. KalshiEX, the response to the petition is due December 7, and 39 states and the District of Columbia have urged the Court to take it up.

What Arkansas actually filed

Griffin's complaint, No. 32CV-26-717, names KalshiEX LLC and Kalshi Inc. and calls the app a "pocket-sized bookie." We have not read the filing itself; what follows comes from local and trade reports, and the Arkansas Advocate's story returned a 403 to our reader. The claims run under the state's Deceptive Trade Practices Act, plus unjust enrichment aimed at Kalshi's transaction fees. Reported relief includes an injunction, restitution, unpaid taxes and civil penalties of up to $10,000 per violation, with a request for a jury. "It doesn't take a genius to understand that wagering money on whether the Razorbacks win or lose is gambling," Griffin said. He added: "Arkansas law is concerned with substance, not semantics."

The Razorbacks line will get the attention. The age claim deserves more. Arkansas generally requires casino gamblers to be 21, and Kalshi lets users trade at 18. According to the complaint, as reported by Deltaplex News, 18-to-20-year-olds traded more than $5 billion on Kalshi nationwide in 2026. Kalshi added protections for younger users in October, including spending limits and monitoring. We cannot verify the $5 billion figure. If it is close, it is the most damaging number in this litigation, because it describes customers Arkansas says its own casinos would have to turn away.

Griffin's suit also alleges that Kalshi knows of "excessive wagering, financial losses, depression, and other mental health harms." Those are allegations with no judgment behind them, and Kalshi had not responded to The Block or CoinDesk when they published.

Why this is the better fight

Compare Utah. Attorney General Derek Brown filed 13 gambling counts plus one count of profiting from illegal activity against Kalshi and against Tarek Mansour and Luana Lopes Lara personally, and the felonies carry possible jail time. Those charges ask individuals to bet their liberty on a preemption question on which federal appeals courts disagree, while their federal regulator sues the state on their exchange's side. Judge Robert Shelby holds a conference on the CFTC's motion to stop Utah's cases at 1 p.m. Friday. We think criminal law is the wrong tool for a legal question that three circuits have answered in two directions.

Arkansas asks a civil court for money and an injunction, with a jury and an appeal available. If Kalshi is right about preemption, it can raise that defence and lose nothing but legal fees. If Kalshi is wrong, it owes what a court says it owes. Nobody has to be arraigned. That is how an unsettled federal question should be tested.

The strongest case against this

Kalshi's best reply is that "civil" undersells the danger. Fifty state courts, each with its own jury and its own remedy, cannot be run through a single national order book. New York's suit seeks more than $36 billion and a temporary restraining order that the CFTC said could stop Kalshi offering contracts to anyone, which is why the agency used its emergency authority on August 12 to order the exchange to keep operating. CFTC Chair Michael Selig says Congress gave his agency "sole responsibility to oversee these markets." A company told by one government to keep trading and by another to stop has a real complaint, whatever the form of the second order. Add $10,000 per violation across a state's users and the penalty can be ruinous without anyone being jailed.

All of that is true, and the fair answer is that Kalshi's complaint belongs with the Supreme Court or with Congress. The petition is pending and the Ninth Circuit clock is now running. Until one of them acts, a civil suit is the least destructive way for a state to press its reading of its own law. It also leaves a real question unanswered that preemption alone does not obviously settle: even if a sports contract is a swap, why should a state lose the ability to ask who may buy it at 18?

We could be wrong on the law, and the Third Circuit is on the record saying so. What would change our view is a Supreme Court decision finding that federal law displaces state consumer-protection claims too. Until then, we would rather see this fight conducted in front of civil juries than in felony arraignments.

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