The Arizona Attorney General intensified the state’s fight against prediction markets with its filing of a 20-count criminal complaint accusing Kalshi of operating an illegal gambling business and violating state laws prohibiting wagering on elections.
The filing comes shortly after Kalshi initiated legal action against the Attorney General and Arizona Department of Gaming in federal court, seeking a temporary and permanent injunction and declaratory relief that Arizona’s state gambling laws are preempted by the Commodities Exchange Act and the Commodity Futures Trading Commission’s exclusive jurisdiction over designated contract markets.
These actions come as the United States Circuit Court of Appeals for the Ninth Circuit – which includes Arizona – is currently set to hear oral argument in the consolidated appeals case involving dissolution of Kalshi’s preliminary injunction awarded in Nevada (where the company has since ceased operating as a result of a temporary restraining order granted to the state) that could prove vital in the ongoing legal battles surrounding prediction markets.
Arizona charges Kalshi with class 1&2 misdemeanors
The state’s claims relate to 20 different acts that occurred between December 14, 2025 – March 12, 2026, during which Kalshi is accused of accepting bets from Arizona residents on various events, including: (i) professional and college sporting contests, (ii) individual player performance, and (iii) outcomes of political elections.
In sum, the complaint charges Kalshi with: (1) 16 Class 1 misdemeanors (punishable by up to six months in jail), and (2) four Class 2 misdemeanors (punishable by up to four months in jail).
In Kalshi’s defense, the company will likely point to the fact that whether state law applies to the operation of its prediction market remains unsettled; however, thought that argument may still have legs in other states, there’s no denying that the tide appears to be shifting against Kalshi as litigation continues.
Arizona law excludes contracts from definition of gambling
ARS § 13-3301 defines “gambling/wager” as the “act of risking or giving something of value for the opportunity to obtain a benefit from a game or contest of chance or skill or a future contingent event…”
However, the definition further states that wagering “does not include bona fide business transactions that are valid under the law of contracts including contracts for the purchase or sale at a future date of securities or commodities.”
The exclusionary language could be utilized to bolster Kalshi’s argument that Arizona’s gambling laws do not apply based on the buying and selling of commodities (i.e., event contracts) being excluded from the state’s definition of gambling. The outcome of the upcoming oral argument in the Ninth Circuit will be impactful in qualifying the validity of this defense.
What comes next in Arizona
On the same day the criminal complaint was filed, the United States District Court for the District of Arizona denied Kalshi’s request for temporary restraining order and issued a briefing schedule for hearing on Kalshi’s motion for preliminary injunction. The court additionally issued an order to show cause as to why the case should remain with the federal court now that criminal charges have been filed with the state.
A hearing on both issues is currently set for April 3. In the criminal case, Kalshi is currently scheduled to be arraigned on April 13.
In response to Arizona’s filing, CFTC Chairman Mike Selig issued the following statement: “The Arizona Attorney General today filed criminal charges against one of our registered exchanges related to prediction markets. This is a jurisdictional dispute and entirely inappropriate as a criminal prosecution. The CFTC is watching this closely and evaluating its options.”
Based on recent remarks, it could be assumed that the CFTC will look to intervene in some capacity in order to protect its exclusive jurisdiction over prediction markets.
