Court stops Tennessee crackdown on Kalshi

A federal judge in Tennessee has temporarily blocked state regulators from enforcing a cease-and-desist order against the prediction markets platform Kalshi. 

In the order issued Monday by US District Judge Aleta Trauger, Kalshi’s request for a preliminary injunction and temporary restraining order has been granted while the case proceeds. 

The Tennessee Sports Wagering Council and the state attorney general tried taking enforcement action against the company when it sent cease and desist letters last Friday, as Cryptopolitan reported.

According to the SWC, Kalshi’s sports-related event contracts constitute illegal gambling under state law or fall under federal commodities regulation. However, the prediction platform insists its products are federally regulated and therefore outside state jurisdiction.

SWC and Tennessee AG try to halt prediction markets services

In the letters Tennessee Sports Wagering Council sent to Kalshi, Crypto.com, and Polymarket, the state accused the platforms of issuing sports wagering products in the state without the required licenses.

The regulators ordered the companies to immediately stop accepting customers in Tennessee, while also directing the firms to void any outstanding contracts and issue full refunds to all users in the state by January 31 or face civil penalties of up to $25,000 per violation. 

Kalshi moved to federal court to fight the order at the start of the week, propounding that the state was overstepping its authority. Judge Trauger sided with the company’s request for temporary relief by concluding it met the parameters for a preliminary injunction at this stage of the litigation.

The judge wrote that Kalshi “will suffer irreparable injury and loss” if Tennessee is allowed to enforce the cease-and-desist order before the court resolves the dispute. She went on to say that the company “is likely to succeed on the merits of its claims and its rights will likely be violated” absent judicial intervention.

Kalshi tried to avert enforcement completely 

According to court filings seen by Cryptopolitan, Kalshi had attempted to head off the enforcement action before the cease-and-desist letters were issued. In the weeks leading up to the order, a representative for the company contacted Tennessee officials to discuss the matter.

The outreach included communications with Lacey Mase, the state’s Chief Deputy Attorney General, who was supposedly asked if the attorney general’s office would be open to a call with the company’s national counsel.

“Kalshi has had productive discussions with authorities in a number of other states, several of which have opted to take a wait-and-see approach as the current litigation plays out,” the prediction market service provider’s representative told reporters.

In a Sunday email response, the attorney general’s office told Kalshi, “We will not be staying enforcement pursuant to your request.” Days later, the cease-and-desist letters were issued.

This is the sixth time Kalshi has sued a state in federal court, as it has also filed lawsuits against regulators in Nevada, New Jersey, Maryland, New York, and Connecticut.

A federal judge in Maryland denied Kalshi’s request for a preliminary injunction last August, saying it failed to clearly show how federal law overrides Maryland’s gambling statutes. Maryland regulators proceeded with enforcement actions against Kalshi and similar platforms after the court’s decision. 

Kalshi has fared better in New Jersey, where a federal district judge ruled that the company’s event contracts fall under the Commodity Exchange Act back in April. The judge found that regulation rests with the Commodity Futures Trading Commission, not state gaming authorities, although New Jersey appealed that decision through the US Court of Appeals for the Third Circuit. 

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