The U.S. Commodity and Futures Trading Commission (CFTC) lost its case against prediction market Kalshi for offering election prediction contracts to U.S. citizens, but the agency filed a new motion arguing that the prediction market was vulnerable to manipulation in an attempt to block the company from preparing for November. of the election offers prediction markets.
The CFTC said last year that Kalshi could not provide contracts related to the Congressional Control Contract, and Kalshi subsequently sued the agency in November 2023. Last week, District Court Judge Jia Cobb ruled in Kalshi's favor, saying the forecast contracts did not involve "illegal activity or gaming" and noting that Congress did not authorize the CFTC to conduct a public interest review of the contracts. However, the CFTC soon appealed to the Court of Appeals for the District of Columbia Circuit, forcing Kalshi to suspend his election contract.
Now, the CFTC is again arguing that its ruling in the case should be stayed while the appeals process proceeds. The agency argued in Saturday's filing that any financial losses Kalshi might face from missing the current election season "... pale in comparison to the harm caused by allowing election gambling on U.S. futures markets."
In its response in support of its motion to stay the judgment pending appeal, the CFTC raised technical issues regarding the definition of controversial terms such as “gaming” and “gambling” and how they should be applied in this case. Legal arguments. The agency argued that because Kalshi's contracts involved betting on election results with items of value, they were "gambling" within the general definition and therefore the CFTC had jurisdiction over them.
In their filing opposing the stay, Kalshi disputed the notion that election prediction market trading is "gaming," writing in the filing: "An election is not a game, and it is not designed for entertainment or sport. And, unlike gaming, The difference is that the outcome of the election will have wide-ranging external and economic consequences."
Both the CFTC and Kalshi appear to agree that unregulated prediction market trading carries the risk of market manipulation. The CFTC argued in its filing that "documented cases of market manipulation have arisen in the markets Kalshi refers to" and cited Polymarket, which the regulator claimed "... suffered a campaign initiated by a group of traders. Vice President Harris’s high-profile attempt at manipulation.”
Kalshi acknowledged the potential for wrongdoing but argued that an unregulated market was already operating. Its document reads:
“…Other election prediction markets (including Polymarket and PredictIt) are currently operating without any federal regulation and are frequently cited in the media as a source of prediction data. Therefore, the moratorium does nothing for election integrity; its only The effect is to restrict all election trading activity to unregulated exchanges, which harms the public interest.”
However, the CFTC called this argument "half-baked" in its filing, saying "pharmacies cannot allow themselves to dispense cocaine simply because it is sold on the black market." "The Commission believes that election gambling in the U.S. futures markets poses a threat to election integrity." The serious threat that another platform offers such services without CFTC oversight does not constitute a reason to allow election gambling to spread."
