Amid legal turmoil, Kalshi is temporarily banned in Nevada

Kalshi isn’t having a very good week. On Tuesday, the attorney general of Arizona filed a 20-count criminal complaint against the online prediction market, accusing it of running an illegal gambling business. Now, another southwestern state has taken a big swing at the company: A judge in Nevada has temporarily banned the service from operating there as part of an ongoing court case brought by state regulators.

Nevada, on behalf of its Gaming Control Board, sued Kalshi in February in an effort to block the prediction site from operating. Officials maintain that Kalshi has failed to acquire the appropriate gaming licenses that would cover the kind of betting activity its users are engaged in and that, by allowing users under the age of 21 to use its services, it violates state law.

Earlier this month, the state requested a temporary restraining order against Kalshi as part of its ongoing case. In a state court on Friday, Judge Jason D. Woodbury granted the state’s request and scheduled a hearing on the restraining order for early next month, court documents show.

In his order, Woodbury wrote that Kalshi was not licensed under the Nevada Gaming Control Act and that, given Kalshi’s policy of taking a commission from contracts purchased through its system, it was clearly operating a “percentage game” (which the state defines as gambling).

Kalshi has argued that, due to its registration with the Commodity Futures Trading Commission, it is under that federal agency’s exclusive regulatory domain, which should exempt it from state laws, court documents show. However, Woodbury noted that the issue of whether federal law overrides state law is still unsettled for now, but the courts have not been leaning in that direction.

Kalshi declined to comment on the development when reached by TechCrunch. Wired first reported on the judge’s decision. Reuters reports that Nevada had previously convinced judges to ban Kalshi competitors like Coinbase and Polymarket.

The Nevada case in which the prediction market finds itself is but one in a growing number of state cases across the country that seek to argue that sites like Kalshi and Polymarket are illegal operations that skirt state gambling laws.

Conversely, current federal officials have positioned themselves as protectors of the prediction industry. Case in point: Following Arizona’s decision to file criminal charges against Kalshi earlier this week, the CFTC’s chairman, Mike Selig, came out swinging against the decision, posting online: “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.”

The increasingly hostile posture of state officials and the lenience of the CFTC have all but guaranteed a regulatory battle between states and the federal government over prediction markets and their future.