CFTC blocks Kalshi from unwinding Michigan trades after court order

CFTC has ordered Kalshi to keep operating in Michigan despite the platform already unwinding sports event trades to comply with a state court order, deepening the dispute over who regulates prediction markets in the U.S.

Summary

• The CFTC ordered Kalshi to continue operating in Michigan despite a state court order requiring the platform to unwind sports event trades.
• Kalshi said it is caught between conflicting federal and state directives after complying with the Michigan court’s ruling.
• The dispute adds to a growing legal battle as states challenge Kalshi’s sports contracts while the CFTC asserts exclusive regulatory authority.

According to a July 14 order from the U.S. Commodity Futures Trading Commission (CFTC), Kalshi must not comply with Michigan’s directive to stop offering sports event contracts and should continue operating, even after the company said it had already reversed trades to satisfy the state court’s requirements.

The conflicting instructions have left the CFTC-regulated prediction market platform caught between state and federal authorities. In a statement posted on X, Kalshi’s head of enforcement and legal counsel, Robert DeNault, said the company had already unwound the affected trades because the Michigan court required it to do so.

“We are disappointed by this decision and believe it is unfair to Kalshi,” DeNault said

“We already acted and unwound the trades, as the Michigan court order required us to do. 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.”

A Kalshi spokesperson told Reuters the company is reviewing the CFTC’s order and weighing its next steps.

The regulator said Michigan became the first state to attempt to interfere with derivatives contracts after they had already been executed, describing the move as a challenge to the federal framework governing designated contract markets.

CFTC Chair Michael Selig said canceling completed trades could create uncertainty across financial markets.

“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,” he added.

Speaking on Fox Business last week, Selig also said it was “critical” that the CFTC preserve its authority over prediction markets.

He added that the agency had already sued nine states and would continue taking legal action against any state seeking to impose civil or criminal penalties on CFTC-registered exchanges.

Michigan case adds to national legal fight

The latest order follows a June 29 ruling by Ingham County Circuit Court Judge Rosemarie Aquilina, who temporarily barred Kalshi from offering sports event contracts to Michigan residents while the state’s lawsuit proceeds. The court warned the company it could face fines of up to $120,000 per day if it failed to meet geolocation requirements.

Michigan Attorney General Dana Nessel has argued that Kalshi’s sports event contracts operate as unlicensed gambling products under the state’s Lawful Sports Betting Act. Kalshi has maintained that its event contracts fall under the Commodity Exchange Act and therefore remain subject to the CFTC rather than state gaming regulators.

Michigan is one of several states challenging Kalshi’s sports contracts. Massachusetts has secured a preliminary injunction blocking the platform from offering similar products while litigation continues, and a court recently allowed state authorities to expand their complaint with new allegations, including claims that Kalshi targets users under 21.

New York has also handed Kalshi an early setback. Earlier this month, Judge Analisa Torres denied the company’s request for a preliminary injunction, allowing the state’s lawsuit to continue after finding Kalshi had not shown it was likely to succeed on its argument that federal commodities law preempts New York’s gambling laws.

As the legal disputes expand, the CFTC continues to argue that Congress granted it exclusive authority over federally regulated prediction markets, while several states maintain that sports event contracts function as sports betting and should remain subject to state gaming laws.