Arizona files criminal charges against Kalshi, alleging it allows illegal gambling

Arizona’s attorney general on Tuesday filed criminal charges against Kalshi, alleging the prediction market platform is engaging in illegal gambling practices and election wagering by allowing users to bet on the outcome of certain events.

The complaint, filed in Maricopa County, Arizona, includes 20 separate counts against Kalshi, claiming the company accepted bets from Arizona residents in violation of state law. The bets in question focused on events including sporting contests, individual player performance, legislation and state and federal elections, according to a statement issued by Arizona Attorney General Kris Mayes’ office. 

“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 the statement.

Arizona state law prohibits residents from offering or accepting bets on the outcome of an election. The charge is classified as a class 2 misdemeanor, a low-level offense that can result in jail time, a fine or probation, according to legal groups based in Arizona. Gambling on the outcome of a sporting event is also illegal under state law, although the Arizona Department of Gaming permits it in some cases. 

Four of the counts against Kalshi concern betting on elections, while the remaining 16 relate to wagering on sports.

The charges against Kalshi come just days after the New York-based prediction market company sued Arizona officials, in what the state’s attorney general’s office referred to as a preemptive “attempt to avoid accountability under Arizona law.”

State vs. federal jurisdiction

Kalshi called the criminal charges “paper thin” and said states don’t have the authority to regulate a national financial exchange.

“As other courts have recognized and the [Commodity Futures Trading Commission] affirms, Kalshi is subject to federal jurisdiction,” a spokesperson told CBS News in an email. “It’s different from what sportsbooks and casinos offer their customers, and it should not be overseen by a patchwork of inconsistent state laws.” 

The Commodity Futures Trading Commission (CFTC), the federal agency that regulates prediction markets, shared a statement from its chairman, Michael Selig.

“This is a jurisdictional dispute and entirely inappropriate as a criminal prosecution,” he said, adding that the CFTC is watching the case closely and evaluating its options.

Dennis Kelleher, president of Better Markets, a nonprofit advocacy group that champions financial reform, told CBS News in an email that many of the events Kalshi customers bet on are “substantively the same as gambling” and that they violate the terms of the Commodities Exchange Act. That 1936 law bars betting on gaming, war, assassination or terrorism.