Federal Judge Blocks Tennessee Enforcement of Kalshi Cease-and-Desist
A federal judge has temporarily blocked the Tennessee Sports Wagering Council (SWC) from enforcing a cease-and-desist order it issued against Kalshi last week, following the company's lawsuit against the state over what it claims is an unlawful attempt to regulate derivatives trading as gambling.
Judge Restrains Tennessee From Enforcement
On January 12, U.S. District Judge Aleta A. Trauger issued a temporary restraining order (TRO) preventing Tennessee officials from enforcing state gambling statutes against Kalshi.
The order restrains SWC from enforcing Tenn. Code Ann. §§ 4-49-101 et seq. (sports wagering law), and Tenn. Code Ann. §§ 39-17-501 et seq. (illegal gambling law), against Kalshi’s sports-event contracts, while the lawsuit proceeds. A preliminary-injunction hearing is set for January 26.
Judge Trauger found that Kalshi “is likely to succeed on the merits of its claims and its rights will likely be violated by Defendants (SWC) through the enforcement of preempted state laws.” Additionally, Kalshi “will suffer irreparable injury and loss” if Tennessee were to enforce its cease-and-desist.
The Cease-and-Desist That Sparked the Lawsuit
Kalshi filed its federal complaint on January 9, the same day the Tennessee Sports Wagering Council (SWC) ordered the company to:
“cease offering sports events contracts to customers in Tennessee immediately.”
The SWC warned that failure to comply could lead to monetary penalties, injunctive relief, and referral to law enforcement.
The move came amid Tennessee’s broader crackdown on prediction markets that also targeted Polymarket and Crypto.com. State regulators have argued that prediction markets function as unlicensed sports betting.
Kalshi Tried to Prevent Litigation
Before Tennessee issued its cease-and-desist, Kalshi attempted to resolve possible disputes without court intervention.
Gaming attorney Daniel Wallach posted on X email correspondence that shows Kalshi’s Tennessee counsel, Robert E. Cooper Jr. of Bass, Berry & Sims, repeatedly contacting the Tennessee Attorney General’s Office to open a line of communication before any potential enforcement action.
In the emails, Cooper referenced the Tennessee Sports Wagering Council’s earlier letter to the Commodity Futures Trading Commission (CFTC) in April and Tennessee’s enforcement actions against sweepstakes casinos, warning that the state appeared to be preparing to take action against Kalshi.
One January 6 email stated that Kalshi:
“has had productive discussions with authorities in several other states, several of which have opted to take a wait-and-see approach as the current litigation plays out.”
Despite those overtures, Tennessee declined to provide any assurance of non-enforcement or to agree to a substantive meeting. Three days later, the SWC issued its cease-and-desist, triggering Kalshi’s federal lawsuit.
Kalshi’s Federal-Preemption Argument
Kalshi’s lawsuit frames Tennessee’s enforcement effort as a direct violation of federal law. It argues that its exchange is subject only to oversight by the CFTC under the Commodity Exchange Act (CEA).
In the complaint, Kalshi states that it is:
“a federally designated derivatives exchange, subject to the CFTC’s exclusive jurisdiction.”
Kalshi says its sports-event contracts were listed through the federal self-certification process. Additionally, the CFTC reviewed those contracts in 2025 without blocking them:
“On January 22, 2025, Kalshi self-certified… sports contracts that are now available on its exchange… The CFTC took no further action and has since allowed thousands of Kalshi’s sports-event contracts to be listed, traded, and closed.”
Under the CEA, Kalshi argues, only the CFTC — not state gambling regulators — has the power to decide whether sports-related event contracts should fall under “gaming” or as being “contrary to the public interest”:
“Federal law authorizes the CFTC to ‘determine’ whether event contracts involving ‘gaming’ should be restricted… authority that is completely incompatible with parallel state regulation.”
On that basis, Kalshi argues Tennessee has no legal authority to apply its sports-betting laws to a federally regulated exchange:
“Defendants may not enforce Tennessee’s gambling laws against Kalshi because Kalshi is a federally regulated exchange that operates under the exclusive oversight of the CFTC.”
Kalshi also pointed the court to a 2025 New Jersey ruling in which a federal judge blocked similar state enforcement. The New Jersey court found Kalshi’s sports contracts “fall within the CFTC’s exclusive jurisdiction” and that “at the very least, field preemption applies.”
Judge Trauger’s TRO now places Tennessee in the same procedural posture, pending the January 26 hearing.
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