Nevada opposes Kalshi's bid to delay court rehearing on prediction markets
The state argues a delay is unnecessary as the court's ruling that Kalshi's contracts are not swaps was based on the Commodity Exchange Act.
Nevada has opposed Kalshi's request to delay a rehearing by the U.S. Court of Appeals for the Ninth Circuit while the Commodity Futures Trading Commission proposes new rules for event contracts.
In a letter dated September 25, Kalshi contends that because the CFTC has stated it intends to revise a regulation known as 17 CFR 40.11 "within the next two months," the court should grant Kalshi's petition for rehearing en banc or hold the petition until the CFTC publishes its revised rule.
Nicole Saharsky, an attorney with Mayer Brown who represents Nevada, said a delay will not change the outcome because the court's no-swaps ruling was based on "the text, context and purposes" of the Commodity Exchange Act.
READ MORE: Prediction markets face regulatory split as lobbying tops $3 million
READ MORE: TikTok's Advertising Policy Draws Clear Line Between 'Trading' and 'Betting' for Prediction Markets
"To start, the CFTC's intent is nothing new," Saharsky wrote in a filing with the court. "The court weas well aware that the CFTC planned to revise section 40.11 when it issued the decision."
Saharsky reminded the court that the CFTC's statement does no more than indicate when that revision might take place.
"Further, revising Section 40.11 would not change the outcome here," Saharsky wrote. "The court held that sports event contracts were not 'swaps' based on text, context and purposes of the (CEA). The court cited Section 40.11(a) only as one base for rejecting one of Kalshi's arguments."
She argued that Kalshi's request is an attempt to prolong its operations.
"Fundamentally, Kalshi's argument is just another attempt at delay, so that Kalshi can continue its unlawful operations for as long as possible," Saharsky wrote. "The weight of authority confirms that the court's decision is correct and that there is no reason to wait to deny Kalshi's petition."
In August, the Ninth Circuit ruled 3-0 Kalshi cannot block Nevada gaming regulators from overseeing its prediction market platform, writing that the Commodity Exchange Act likely does not preempt state gaming law.
In a separate ruling, the Ninth Circuit in Blue Lake Rancheria versus Kalshi ruled the Commodity Exchange Act does not authorize sports betting on tribal land.
Last week, Kalshi lost an appeal after the U.S. Circuit Court for the Sixth Circuit ruled that Ohio and Tennessee can enforce their sports gambling laws against the platform, rejecting its argument that the Commodity Exchange Act protects its sports event contracts and the contracts are regulated by the CFTC.
Meanwhile, a federal judge in Illinois on Friday granted in part requests by Kalshi, Coinbase and the CFTC for preliminary injunctions, finding that state gaming licensing regulations conflict with federal law governing sports event contracts.
The precise terms of the injunction still need to be drafted. The judge ordered the parties to submit a proposed injunction by October 29 and left challenges to the state's wagering fees unresolved.
The Illinois Gaming Board believes sports-event contracts are illegal, untaxed gambling, while the state legislature recently imposed a 1.75% to 3.5% transaction tax on sports event contracts offered by prediction markets.
Last week, the CFTC submitted two proposed rules to the White House tied to prediction markets as the agency seeks to confirm its jurisdiction, despite adverse court rulings and pushback by states and tribes.
The CFTC filed two proposals with the White House Office of Information and Regulatory Affairs. One proposed rule would further define a swap to include event contracts, while the second proposed rule would "exclude casino-style gambling products."