Kalshi fails to win emergency relief from NY enforcement while its appeal proceeds
A federal judge in Manhattan declined on July 27 to block New York from enforcing its gambling laws against KalshiEX while the exchange’s appeal works its way through the courts.
What happened
- U.S. District Judge Analisa Torres (SDNY) denied KalshiEX’s request for an emergency injunction pending appeal in KalshiEX LLC v. Williams. The three-page order also rejected Kalshi’s alternate request for short-term administrative relief.
- The order does not dismiss Kalshi’s appeal (filed with the Second Circuit as No. 26-1835) or resolve the underlying case; it only refuses to shield Kalshi from New York enforcement during the appellate process.
- Kalshi had appealed after Torres on July 7 denied its motion for a preliminary injunction. That earlier 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 court refused emergency relief
- An injunction pending appeal requires a stronger showing of likely success than a standard preliminary injunction. Torres said Kalshi failed to satisfy any of the four required factors in the earlier proceeding and did not identify extraordinary circumstances that would justify reversing that decision.
- Kalshi argued it faced a Hobson’s choice: violate New York law or comply and risk losing federal registration. Torres found the claimed risk speculative and viewed the expected costs as monetary—insufficient to establish irreparable harm.
The CFTC rule proposal and the court’s view
- Kalshi pointed to a June proposed rule from the Commodity Futures Trading Commission (CFTC) asserting that the CEA expressly preempts state laws regulating transactions on CFTC-registered exchanges and proposing standards for reviewing event contracts involving gaming, unlawful conduct, war, terrorism and assassination.
- Torres did not invalidate or formally reject that proposed rule. Citing the Supreme Court’s Loper Bright decision, she emphasized that courts must independently interpret statutes and reiterated her view that the CEA does not automatically displace all state gambling laws covering swap-like transactions. The CFTC proposal completed its public-comment period on July 27 but is not a final rule.
Broader legal landscape and why this matters to crypto/prediction markets
- The issue of federal preemption is split across courts. In April the Third Circuit (2–1) held New Jersey could not regulate Kalshi’s sports-event contracts because they fell within the CFTC’s exclusive jurisdiction. Other courts, including Torres in SDNY, have taken a narrower view, allowing states to apply gambling laws in many cases.
- The split broadened July 27 when a Minnesota federal judge temporarily blocked that state’s ban on direct prediction markets, finding several Kalshi and Polymarket contracts likely met the federal definition of swaps (though the judge warned later relief might be narrower).
- Kalshi has faced additional state-level restrictions (e.g., Washington), and the CFTC has sued multiple states, arguing that federally registered exchanges should operate under a single national derivatives framework. Those fights have direct implications for crypto-native prediction markets and any platforms offering event-based contracts, which could face a patchwork of state enforcement unless federal preemption is clarified.
What’s next
- The Second Circuit will consider Kalshi’s emergency motion; its decision could temporarily halt New York enforcement while the appeal is resolved. After ruling on the emergency relief, the appeals court will address the merits, including whether New York’s gambling laws are preempted by the CEA.
- Separately, the CFTC may revise or finalize its proposed prediction-market rule after reviewing public comments; no deadline for a final rule has been announced.
Bottom line: For now, New York regulators remain free to enforce state gambling laws against Kalshi unless an appellate court intervenes. The coming rulings and any CFTC rulemaking will be closely watched by crypto and prediction-market platforms operating across state lines.
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