New York Attorney General Letitia James weighed in on the United States Commodity Futures Trading Commission’s lawsuit against New York on Monday in the form of a letter to the US District Court for the Southern District of New York.
The correspondence focuses on an August emergency order issued by the CFTC to Kalshi in response to New York’s lawsuit against Kalshi.
James makes a case in the letter that the emergency order is irrelevant to the commission’s lawsuit against the state, as the court considers whether to grant a request for a preliminary injunction barring New York from proceeding with its litigation. Given the state’s population and the importance of sports event contract trading for Kalshi’s volume, each detail in these lawsuits carries high stakes.
James responds to CFTC order in court filing
James’ Aug. 31 letter to US District Judge Lorna G. Schofield states that “the ‘order’ should be given no weight on plaintiffs’ preliminary injunction motion (‘motion’) because it is irrelevant and has no persuasive or evidentiary value.”
The order James is referencing came from the CFTC on Aug. 11 and instructed Kalshi to continue processing trades in sports-event contracts initiated in New York, even though the state had sued Kalshi for alleged violations of New York gambling laws.
James’ letter concerns the United States of America vs. New York lawsuit, which is a separate matter from New York’s lawsuit against Kalshi. However, the CFTC’s success in the former could handcuff the latter.
James lays out case against court’s consideration of order
James addresses the court on two points in trying to persuade Schofield to disregard the CFTC order as substantial in the CFTC’s plea for injunctive relief.
- The order carries no weight in this context because it’s merely the CFTC restating its legal arguments that multiple courts have already found lacking
- The order fails an “expert and impartial judgment” test because its sole purpose is to reinforce those legal arguments
In supporting her arguments, James cites court decisions from the US Ninth Circuit Court of Appeals and the US District Court for the Western District of Wisconsin. Both of those rulings found that sports event contracts do not meet the statutory definition of “swaps” under federal law and held that federal statutes do not preempt state governments from regulating sports event contract trading within their borders.
James adds that “the ‘order’ does not claim to be based on any expert judgment.” With that statement, she refers to a section of the United States Code that requires that emergency orders from regulatory agencies like the CFTC be based on those bodies’ use of “expert and impartial judgment.”
Whether Schofield ignores the CFTC’s order in her decision on the CFTC’s motion for a preliminary injunction may not ultimately make the difference in whether she grants that motion. However, James faced court direction to respond to the order, and each chance to try to sway Schofield is worth taking for both sides of the dispute.
Sports event contract offerings in New York are crucial for Kalshi
The vast majority of the contract volume on Kalshi is at least partially sports, and New York is home to the US’ most populous city.
Litigation blocking Kalshi’s ability to offer sports event contracts in the state could mean a significant loss of fees, especially with Kalshi set to provide these markets in the state for a full NFL season for the first time.
Such a significant legal setback might also degrade investor confidence in the company’s future. For those reasons, the stakes in New York v. Kalshi and USA v. New York couldn’t be higher for the prediction market exchange at the heart of both disputes.
