Arizona Files Criminal Charges Against Kalshi as Federal Judge Raises Abstention Question
Arizona has filed criminal charges against Kalshi, while a federal judge has questioned whether he should even hear the company’s complaint against the state.
Arizona became the first state to file criminal charges against a prediction market platform on Tuesday, accusing Kalshi of running an illegal gambling operation, which prompted a federal judge to immediately question whether he can even hear the company’s attempt to stop it.
“Kalshi may brand itself as a ‘prediction market,’ but what it’s actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law,” said Attorney General Mayes. “No company gets to decide for itself which laws to follow.”
Arizona’s Criminal Case Against Kalshi
The 20-count criminal information accuses Kalshi of accepting bets from Arizona residents on various events in violation of state law.
These events include professional and college sporting contests, proposition bets on individual player performance, and whether the SAVE Act would become law.
Among the charges are four counts of election wagering, including bets on the 2028 presidential race, the 2026 Arizona gubernatorial race, the 2026 Arizona Republican gubernatorial primary, and the 2026 Arizona Secretary of State race
Notably, Arizona is the first state to file criminal charges against prediction markets. Other states have pursued civil litigation to assert that state gambling laws apply to prediction markets or issued cease-and-desist orders.
By filing criminal charges, Arizona can seek criminal penalties against Kalshi. That includes fines of $10,000 to $20,000 per charge, asset forfeiture, and court orders to shut down the alleged criminal activity.
Unlike civil enforcement actions, criminal cases also allow prosecutors to use broader investigative powers, such as subpoenaing company records and compelling testimony from executives or employees as they build the case.
Kalshi Filed Federal Lawsuit First
The charges come just days after Kalshi filed a suit against Arizona state officials, including Mayes, in federal court.
The March 12 complaint argues that the Commodity Exchange Act preempts state gambling laws and that the Commodity Futures Trading Commission (CFTC) has the “exclusive jurisdiction” over event contracts listed on designated contract markets.
According to the filing, Kalshi challenges Arizona’s “intrusion” into the federal government’s exclusive authority to regulate derivatives trading and improperly attempted to treat Kalshi’s contracts as illegal gambling.
The lawsuit followed a cease-and-desist order Arizona issued in May 2025 and a subsequent warning to licensed sportsbooks not to participate in prediction markets.
These actions, Kalshi argued, demonstrate a credible threat that Arizona “will imminently bring an enforcement action” against the company.
Federal Judge Denies TRO, Raises Abstention Question
Kalshi’s lawsuit has already hit a roadblock. On the same day as Arizona’s criminal charges, U.S. District Judge Michael T. Liburdi denied Kalshi’s motion for a temporary restraining order, while leaving pending the motion for a preliminary injunction.
Judge Liburdi ordered Kalshi to show cause by March 20 why the court should not abstain from the case entirely in light of Arizona’s criminal proceedings in state court.
The judge’s decision is based on the doctrine of Younger abstention. It holds that federal courts generally should not interfere with ongoing state criminal proceedings in deference to state sovereignty. The doctrine promotes comity between state and federal courts.
Arizona must respond by March 27, with Kalshi’s reply due April 1. Judge Liburdi set a hearing for both the preliminary injunction and the abstention on April 3.
The Younger abstention doctrine could be significant. If the court agrees and declines to intervene, it would leave Kalshi to fight Arizona’s criminal case in state court. That could provide a roadmap for other states seeking to challenge prediction markets.
Courts Split on Prediction Market Regulation
Last week, an Ohio federal judge denied Kalshi a preliminary injunction against state officials. The decision allowed Ohio to continue enforcing its sports-betting laws against the prediction market platform while the case proceeds. The court rejected Kalshi’s federal preemption arguments.
Kalshi has also recently suffered defeats in its litigation against Nevada, and a Massachusetts judge issued an injunction against the platform, though it is currently on hold pending Kalshi’s appeal. In August 2025, a federal court in Maryland denied Kalshi’s request for a preliminary injunction.
Kalshi has scored some victories as well. A Tennessee federal judge ruled that the company was likely to succeed in arguing that sports-event contracts qualify as swaps regulated by the CFTC. In April 2025, a federal court in New Jersey issued a preliminary injunction in favor of the company.
Kalshi and the CFTC Push Back
In an X post, Kalshi called the Arizona charges “seriously flawed” and “gamesmanship.” It argued that the criminal filing was timed to “circumvent federal court and short-circuit the normal judicial process.” The company said the charges are “meritless” and it looks forward to fighting them in court.
CFTC Chairman Mike Selig weighed in, calling the Arizona charges “entirely inappropriate as a criminal prosecution” and saying the agency is “watching this closely and evaluating its options.”
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