Kalshi sued the state of Arizona recently in U.S. District Court, naming Attorney General Kris Mayes and Arizona Department of Gaming officials as defendants.

The prediction market exchange argues that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over its event contracts, and that state enforcement would violate federal preemption.

Mayes wasn’t deterred. Just days later, she filed 20 criminal counts.

What Happened

Mayes’ office appears to have placed a series of small bets on Kalshi from Arizona, then used them as the basis for a 20-count criminal information filed March 16 in Maricopa County Superior Court.

The wagers were tiny, including a $30 bet on the Commanders-Giants NFL game, a $1 Super Bowl prop on whether Elon Musk would attend, a $5 OKC Thunder spread and a $1 ASU women’s basketball game. The largest was $30, most were $1 or $2.

Arizona law bans election betting outright. The filing cites a $2 bet on J.D. Vance for president in 2028, $2 on the Arizona governor’s race, $1 on Andy Biggs in the GOP gubernatorial primary, and $1 on the Arizona Secretary of State race.

Neither Kalshi entity was registered to do business in Arizona.

Why It Matters

This appears to be the first criminal case filed against a CFTC-regulated prediction market exchange. Other states have issued cease-and-desists or filed civil actions, but Arizona went straight to the criminal docket.

The charges land just as the CFTC moves toward a more supportive federal framework for prediction markets, asserting exclusive jurisdiction over event contracts. CFTC Chairman Mike Selig warned states in February that his agency would defend its authority in court.

But the legal landscape is fractured. A federal judge in Ohio denied Kalshi an injunction last week, while a Tennessee court granted one weeks earlier. Kalshi faces active cases in roughly a dozen states including Nevada, Massachusetts, New York and Michigan.

Robinhood Markets Inc (NASDAQ:HOOD) distributes Kalshi contracts through its app.

DraftKings Inc (NASDAQ:DKNG) and Flutter Entertainment PLC (NYSE:FLUT), the licensed sportsbooks Kalshi is effectively undercutting by bypassing state licensing, may see the regulatory pressure as a potential tailwind.

"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," Mayes said in a statement.

New York-based Kalshi, in a statement, lamented that "a state can file criminal charges on paper-thin arguments," It said its business was different from sportsbooks and casinos and "should not be overseen by a patchwork of inconsistent state laws."

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