Arizona charges Kalshi with criminal misdemeanors, alleging illegal gambling

Arizona’s attorney general has filed misdemeanor criminal charges against Kalshi, accusing the predictions platform of running an illegal gambling and election wagering operation in the state.

They’re the first criminal charges to have been filed against Kalshi, though the company is embroiled in multiple lawsuits and investigations and has received dozens of cease-and-desist letters across the nation.

Prediction platforms like Kalshi have drawn comparisons to online sports gambling as they allow users to wager on the outcomes of events in pop culture, politics, sports and more.

Multiple states have argued that legalizing and regulating sports betting is under the jurisdiction of local regulators and outside the authority of the Commodity Futures Trading Commission, which regulates event contracts and the prediction markets.

States like Michigan and Massachusetts have filed civil lawsuits aimed at stopping operations or compelling Kalshi to meet gambling license requirements.

In the Arizona filing, Attorney General Kris Mayes charged Kalshi with 20 counts of accepting various bets in Arizona without a license, including wagers on state elections, which is separately and explicitly forbidden under Arizona law.

“No company gets to decide for itself which laws to follow,” Mayes said in a statement.

Kalshi draws distinctions between the event contracts it offers and what sportsbooks and casinos offer.

“Sadly, a state can file criminal charges on paper thin arguments,” the company said in a statement to CNBC. “States like Arizona want to individually regulate a nationwide financial exchange, and are trying every trick in the book to do it. As other courts have recognized and the CFTC affirms, Kalshi is subject to federal jurisdiction.”

Last week, Kalshi filed for a preliminary injunction to try and keep Arizona from enforcing its state laws.

On Tuesday, federal judge Michael Liburdi denied Kalshi’s request for a temporary restraining order and ordered Kalshi to demonstrate why the case should be in federal court given the state charges against Kalshi.

Kalshi has preemptively sued to stop other states from taking punitive action, a strategy Mayes described as bullying states, “running to federal court to try and avoid accountability.”

Gaming attorney Daniel Wallach meticulously tracks suits and countersuits against the predictions platforms. He described the preemptive lawsuits as Kalshi’s modus operandi.

“That ‘win the race to the courthouse’ strategy has proven to be an effective tactic thus far,” Wallach said, pointing to Kalshi’s legal victories in getting preliminary injunctions in New Jersey and Tennessee.

Wallach is not involved in any of Kalshi’s legal disputes.

Still, the Arizona attorney general’s office highlighted Kalshi’s recent loss for a preliminary injunction against Ohio, in which federal judge Sarah Morrison said Kalshi’s concerns were “dwarfed by Ohio’s interest in exercising its police power, enforcing its duly-enacted laws, and regulating sports gambling to promote the public welfare.”

CFTC Chair Michael Selig recently told CNBC the agency would require the prediction platforms, which currently self-certify, to do a better job of restricting event contracts that encourage manipulation, like, for instance, questions of whether an athlete would suffer an injury.

A bipartisan bill has been introduced in the House of Representatives that would prohibit event contracts on sports, unless a state were to specifically permit it. The bill would also ban entirely prediction markets on elections and government actions.

As lawmakers, regulators and courts grapple with defining what gambling is, 61% of Americans report they view event contracts on prediction markets more like gambling than investing, according to a poll released Tuesday by Ipsos and The American Institute for Boys and Men.

Disclosure: CNBC and Kalshi have a commercial relationship that includes a CNBC minority investment.