Federal agency intervenes in Michigan’s legal fight over Kalshi sports contracts

A federal board charged with overseeing futures trading is barring a popular prediction market from implementing a new rule after being ordered to cease sports betting operations in the state. 

Earlier this year, Michigan Attorney General Dana Nessel filed a lawsuit against Kalshi, an online trading platform which effectively allows users to wager on the outcome of real world events, arguing the company was violating the Michigan Lawful Sports Betting Act.

On June 29, Judge Rosemarie Aquilina of Ingham County’s 30th Judicial Circuit Court ordered Kalshi to cease offering event contracts on sporting events to Michigan residents. 

“Michigan and its most vulnerable citizens are suffering and will continue to suffer immediate and irreparable harm absent relief from being exploited by Kalshi’s sports betting operation masquerading as an investment opportunity,” Aquilina wrote in granting a temporary restraining order on the company.

On Tuesday, the Commodity Futures Trading Commission blocked Kalshi from canceling previously executed trades in response to the court order. 

Michael S. Selig, the commission’s chair, said the state cannot force a designated contract market to violate its obligations, and that federal law does not permit one of these markets from discriminating against a state’s residents.

“Canceling trades that have already been executed is an unprecedented step that risks a cascading effect on the entire marketplace and undermines the certainty in contracting that is a necessary component of a functioning market,” Selig said. “The Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations.”

In a statement to Michigan Advance, Nessel Press Secretary Danny Wimmer said the attorney general disagreed. 

“The State of Michigan has an obligation to protect its residents, and today’s action by the CFTC attempts to undermine states’ efforts to regulate online sports betting and uphold state tax law,” Wimmer said. “Just as any other company that seeks to operate in Michigan, Kalshi should be required to follow the laws of Michigan.”

In a social media post, Robert J. DeNault, Kalshi’s legal counsel and head of enforcement, said the company was disappointed in the commission’s decision.

“We already acted and unwound the trades, as the Michigan court order required us to do,” DeNault said. “We are being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations. We did not have a choice.”