Kalshi’s bid for emergency relief denied as fight over prediction markets heads to Second Circuit
A federal judge in Manhattan refused to pause New York’s enforcement of state gambling laws against Kalshi while the company appeals, deepening legal uncertainty for prediction-market platforms.
What happened
- On July 27, U.S. District Judge Analisa Torres denied KalshiEX LLC’s request for an emergency injunction pending appeal in KalshiEX LLC v. Williams. The three‑page order does not dismiss Kalshi’s appeal or decide the underlying lawsuit; it simply denies temporary protection from New York enforcement while the appellate process continues.
- Kalshi had filed the appeal (Second Circuit case no. 26‑1835) after Torres rejected its July 7 motion for a preliminary injunction. That prior ruling concluded the Commodity Exchange Act (CEA) likely does not preempt New York’s gambling laws as applied to Kalshi’s sports-event contracts.
Why the injunction was denied
- An injunction pending appeal requires a higher showing of likely success than an ordinary preliminary injunction. Torres found Kalshi had not satisfied the four-factor test in the earlier ruling and identified no unusual circumstances to reverse that outcome.
- The judge called Kalshi’s alleged risk to its federal registration “speculative” and characterized the expected compliance costs as primarily monetary—generally insufficient to qualify as irreparable harm.
- Kalshi pointed to a June proposed CFTC rule that asserts the CEA expressly preempts state laws regulating transactions on CFTC‑registered exchanges and proposes standards for event contracts involving gaming, unlawful conduct, war, terrorism and assassination. Torres did not nullify or reject that proposal; instead she emphasized that courts must independently interpret statutes under the Supreme Court’s Loper Bright decision and reiterated her view that the CEA does not displace every state gambling law governing transactions that resemble swaps. The CFTC’s public-comment period closed on July 27; the proposal is not a final rule.
Wider legal context and split among courts
- The Kalshi litigation sits in the middle of a fractured federal landscape. In April, the Third Circuit (2–1) ruled New Jersey could not regulate Kalshi’s sports-event contracts, finding they fell within the CFTC’s exclusive jurisdiction. Other federal courts—including courts in New York and several other states—have taken a narrower view of federal preemption.
- The split expanded on July 27 when a Minnesota federal judge temporarily blocked that state’s ban on prediction markets, concluding certain Kalshi and Polymarket contracts likely meet the federal definition of swaps. At the same time, states such as Washington have succeeded in blocking Kalshi’s sports contracts under state gambling laws.
- The CFTC has separately sued multiple states, arguing that federally registered exchanges should operate under a single national derivatives framework.
What’s next
- The Second Circuit will decide Kalshi’s emergency request for temporary relief; if denied, New York may continue enforcement while the court later addresses the merits of Kalshi’s appeal, including whether state gambling laws are preempted by the CEA.
- The CFTC may still revise or finalize its proposed prediction‑market rule after reviewing comments, but it has given no timetable for a final rule.
Why crypto and prediction‑market platforms should care
- The case spotlights ongoing tension between state gambling laws and the federal oversight of derivatives—an issue that directly affects crypto-native prediction markets and any platform offering event-based contracts. Until courts or regulators create a uniform rule, operators face a patchwork of state decisions that could limit product offerings or force costly compliance changes.
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