Developing Utah Charged Kalshi's Founders With Felonies, and "Just Like We Did in Arizona" Is the Wrong Thing for Kalshi to Promise

Editor's note: TrueEdge builds odds tools and earns affiliate commissions from licensed sportsbooks, which compete with the exchanges this piece is about. Our standing position is that states should not criminalise federally registered exchanges, and that the fight belongs in civil court and in Congress. Weigh the conflict.

On Wednesday, Utah Attorney General Derek Brown filed three criminal cases in state court: one against Kalshi, one against its chief executive, Tarek Mansour, and one against its chief operating officer, Luana Lopes Lara. Each carries 14 counts. One is a second-degree felony for a "pattern of unlawful activity," which Front Office Sports reports can carry up to 15 years by itself. Twelve are third-degree felonies for online gambling promotion. The last is a Class A misdemeanor.

The evidence is small. In September, investigator Scott Eggerman opened what his own complaint calls "an undercover Kalshi account, using an undercover name and an undercover Visa Debit Card," from a Utah IP address. Over two weeks he placed about a dozen bets totalling $114.87, Reason reports. One was $20 on Troy to beat Utah State. He lost $25.10.

Kalshi's answer came within hours: "This is a crazy overreach; Utah is clearly playing politics. We look forward to putting a stop to this in court, just like we did in Arizona." The Arizona line is the one to examine, because it is wrong in a way that matters for what happens next.

What actually happened in Arizona

Arizona filed 20 misdemeanor counts against Kalshi in Maricopa County on March 17. Kalshi went to federal court to stop the prosecution. On April 8, Judge Michael Liburdi refused. The Anti-Injunction Act, he held, bars a federal court from interfering with a pending state criminal case, and "Kalshi has not sufficiently demonstrated that the Court may issue an injunction against future enforcement."

The case stopped two days later, and not because of anything Kalshi argued. The Justice Department and the CFTC filed their own motion, and on Friday, April 10, Liburdi granted it, finding the agency "has clearly shown that it will suffer irreparable harm absent an injunction." That order cancelled an arraignment set for the following Monday. The Anti-Injunction Act's exception covers injunctions sought by the United States, and that is the route a private defendant does not have. Kalshi did win a preliminary injunction of its own in May, less than a month later. By then the federal government was already in the fight and Arizona's prosecution was already on hold. Attorney General Kris Mayes has been asking Liburdi since September to dissolve that injunction, on the strength of the Ninth Circuit's August ruling for Nevada.

So "just like we did in Arizona" mostly means "just like the federal government did for us in Arizona." Kalshi's first request, on its own, was refused. It is largely a promise about someone else's lawsuit.

Why Utah is the harder room

The CFTC has already sued Utah. The complaint, United States and CFTC v. Utah, No. 2:26-cv-01055, was filed Monday, October 26, in the District of Utah, two days before the charges. We read it on Tuesday. It rests on a swap definition the agency has proposed and not finished, and it is filed in the court where Judge Robert Shelby ruled on August 4 that the Commodity Exchange Act does not preempt Utah's gambling ban as applied to Kalshi. The Tenth Circuit then refused to block enforcement while Kalshi appeals.

That is the difference between the two states. In Arizona, Liburdi had no ruling of his own against Kalshi on preemption to explain away. In Utah, the government is asking a federal bench to stop a prosecution based on the same theory that bench has already rejected on the merits, while the appeals court above it has declined to step in. The United States can still get past the Anti-Injunction Act. Getting past Shelby's reasoning is a different problem.

There is also a timing problem. The civil cases Utah has brought, including the October 20 state-court suit against Kalshi and Susquehanna that estimated $30.6 million to $61.2 million in Utah fees, could be argued on Kalshi's schedule. A criminal case cannot. Two named executives are now personal defendants, and a criminal docket runs on the prosecutor's schedule, not theirs. The CFTC spokesperson called the charges "shameful, intimidation-style tactics in an effort to bully CFTC-registered exchanges," and said the agency "will not waiver in its commitment to vigorously defend our exclusive jurisdiction." As of Thursday afternoon, the CFTC had not said whether it will seek a restraining order against the prosecution itself, and Gizmodo reports it did not answer that question. We do not know if it will. Everything turns on it.

The audience was never only Kalshi

The most telling reaction on Thursday did not come from Kalshi. A DraftKings spokesperson told Front Office Sports that sports, novelty, political and some other event contracts on DraftKings Predictions were no longer available to customers in Utah, "effective immediately." Financial contracts on stocks, commodities and crypto stay up, and open positions will settle normally.

DraftKings has state sportsbook licenses to protect, and no interest in finding out whether a Utah jury agrees with the CFTC. That is what criminal charges against executives buy a state: they do not need a conviction to move the market, just enough personal risk that a licensed operator with a compliance department decides the product is not worth it. FanDuel and Polymarket had not said by Thursday whether they would follow.

Michigan reached the same result through a negotiation. On Wednesday evening the Michigan Gaming Control Board announced that Polymarket US would stop offering sports contracts to Michigan customers and close open positions by the end of November 25. Polymarket had lost a restraining order and a preliminary injunction there. The states are no longer only trying to win the preemption argument. They are making it expensive to keep having it.

The best case for Kalshi

The strongest argument on Kalshi's side runs like this. The Anti-Injunction Act does not apply to the United States, and Younger abstention, which normally keeps federal courts out of state prosecutions, gave way in Arizona once the federal government sued. Shelby ruled on Kalshi's claims, not on the government's, and a court can find the federal sovereign's interest weightier than a private company's. A criminal case built on $114.87 of the state's own money looks like leverage, not a real prosecution. On that view the charges will be frozen in federal court before anyone is arraigned, and investors agreed: on Thursday Kalshi announced a $1 billion round at a $40 billion valuation.

Some of that may prove right. The CFTC is a real party with real procedural advantages, and the size of the bets matters less than it looks, since the counts are about operating a platform, not the investigator's losses. But "the government will save us" is a weaker position than Kalshi's statement admits. It depends on an agency choosing to fight, on a judge in a district that has already ruled against preemption, and on a circuit that has already declined to help. If Shelby or a colleague grants the CFTC a restraining order against the prosecution within the next few weeks, Kalshi's Arizona line will hold and we will have overstated the risk. If the government does not move quickly, or the court says no, the first federally registered exchange will have founders defending felony charges in state court. That would settle in practice what the circuits have not settled in law.

We oppose criminalising federally licensed exchanges. A disagreement about what a swap is belongs in civil court. That is the argument the CFTC now has to win in Salt Lake City, and Kalshi's own lawyers already lost it there in August.