CFTC's Kalshi Detour Hits a Rakoff-Sized Roadblock 🧱

A federal judge in New York declined to step in front of a state-level enforcement case against prediction market operator Kalshi, denying an emergency Commodity Futures Trading Commission motion for a temporary restraining order without prejudice. U.S. District Judge Jed S. Rakoff ruled that the CFTC had not demonstrated a high likelihood of success on the merits or a likelihood of irreparable harm, according to the order. The agency may renew its request before Judge Victor Marrero on Friday, Aug. 7.

New York Attorney General Letitia James sued Kalshi last Friday, alleging that the company runs an illegal, unlicensed gambling business by offering contracts tied to sports, elections and other events. The New York State Gaming Commission issued Kalshi a cease-and-desist order in October 2025. The state argues the products are wagers subject to New York gambling law, while the CFTC and Kalshi contend the contracts are derivatives under the agency's exclusive federal jurisdiction.

The dispute sits at the center of a broader jurisdictional fight over whether federal commodities law preempts state gambling enforcement against event contracts traded on CFTC-regulated exchanges. Rakoff's decision leaves the state case intact for now and forces the CFTC to either refile with additional evidence before Marrero or pursue other procedural options.

The CFTC's motion was filed as part of its effort to shield event-contract platforms from overlapping state actions, a question that has gained urgency as prediction markets expand into sports and election offerings. Industry participants have watched the Kalshi fight closely because its outcome could shape how state regulators treat federally designated derivatives exchanges operating in their jurisdictions.

The case is the latest flashpoint in the ongoing contest between state gambling authorities and federally regulated prediction markets, with similar questions raised around platforms such as Polymarket. Rakoff's order did not address the underlying preemption question, leaving the merits for another day and another docket.