Nevada urges Ninth Circuit to reject Kalshi’s CFTC-rulemaking delay

Nevada has urged the U.S. Court of Appeals for the Ninth Circuit to reject Kalshi’s request to delay consideration of its petition for rehearing in the parties’ dispute over sports-event contracts. Kalshi had asked the court either to grant rehearing en banc or hold its petition while the Commodity Futures Trading Commission revises its event-contract regulation, 17 C.F.R. § 40.11.

In a Sept. 25 letter, Kalshi pointed to the CFTC’s stated intention to revise the rule within two months. Nevada’s lawyer, Nicole Saharsky, responded that a pause could not alter the result because the panel’s conclusion that Kalshi’s contracts were not swaps rested on the Commodity Exchange Act’s text, context and purposes.

As we reported in August, a unanimous Ninth Circuit panel held that Nevada could enforce its gaming laws against Kalshi’s sports-event contracts, finding that the contracts were sports bets rather than swaps under the CEA.

The Aug. 28 decision affirmed in part the dissolution of a preliminary injunction that had prevented Nevada from enforcing its laws against the sports contracts. It held that the CEA was unlikely to preempt Nevada law as applied to those products, rejected Kalshi’s conflict and obstruction arguments, and sent the company’s election-contract claims back to the district court for further consideration.

Nevada argued that the panel already knew the CFTC was considering revisions to Section 40.11 when it issued that ruling. The regulation was one basis for rejecting a Kalshi argument, the state said, rather than the sole foundation for the court’s no-swaps conclusion.

Saharsky characterized the request as an attempt to prolong the litigation so Kalshi could continue what Nevada calls unlawful operations. Kalshi’s argument for delay rests on the prospect that a revised rule could bear on the federal-law issues decided by the panel.

The CFTC has been reconsidering its approach to event contracts. The agency withdrew its 2024 event-contract rule proposal in February and said it did not intend to finalize that version. Chairman Michael S. Selig said the commission would pursue a new rulemaking based on its interpretation of the CEA and congressional intent.

A separate CFTC proposal published in June would define gaming and specify when an event contract involves an underlying activity. It would also set out categories of contracts that may be deemed contrary to the public interest and barred from listing or clearing through CFTC-registered entities, using factors such as price discovery, information aggregation, market integrity, and compliance and self-regulatory challenges.

According to the reporting on Nevada’s filing, the CFTC has submitted two proposed prediction-market rules to the White House Office of Information and Regulatory Affairs. One would further define a swap to include event contracts, while the other would exclude casino-style gambling products.