The Commodity Futures Trading Commission filed a motion Wednesday asking a federal judge to immediately freeze Arizona’s criminal prosecution of Kalshi, escalating a federal-state confrontation that now spans three simultaneous lawsuits and a looming arraignment.

The CFTC asked the U.S. District Court for the District of Arizona for a preliminary injunction and temporary restraining order. The motion follows a suit filed last week alongside the Department of Justice.

“Arizona’s decision to weaponize preempted state criminal law against companies that comply with a comprehensive federal regime sets a dangerous precedent,” said CFTC Chairman Michael Selig.

Arizona AG Kris Mayes filed 20 misdemeanor counts against Kalshi on March 17, including four counts of election wagering and 16 counts of unlawful betting, the first criminal charges ever brought against a CFTC-registered prediction market.

Federal Counteroffensive

The CFTC also sued Connecticut and Illinois, both of which issued cease-and-desist letters to federally regulated platforms. The agency argues the Commodity Exchange Act gives it exclusive jurisdiction over event contracts, locking states out entirely.

If the CFTC wins, prediction markets operate under a single federal framework nationwide. If states prevail, platforms face a licensing gauntlet across dozens of jurisdictions, and potentially more criminal prosecutions modeled on Arizona’s approach.

A federal appeals court ruled Monday that state gaming regulators have no legal authority over contracts listed on a CFTC-licensed exchange, handing Kalshi its biggest court victory yet.

The Ticker Angle

For traditional sportsbooks, Arizona’s criminal prosecution is exactly the outcome they have been lobbying for. If states win the jurisdictional fight, DraftKings (NASDAQ:DKNG) and Flutter Entertainment (NYSE:FLUT) could inherit the users Kalshi loses.

DraftKings reports earnings April 30, and the Arizona case will likely come up on the call.

Robinhood Markets (NASDAQ:HOOD), which pipes Kalshi contracts directly into its brokerage app, faces the inverse risk: a state victory chips away at one of its fastest-growing product lines.

Image: Shutterstock