Utah Becomes Second State to File Criminal Charges Against Kalshi

Utah is already pursuing civil penalties for Kalshi for alleged violations of the state's anti-gambling laws. Law enforcement in the state has added criminal actions to its pursuit, with Kalshi co-founders Luana Lopes Lara and Tarek Mansour facing multiple felony counts.

With this action, Utah becomes the second state to seek criminal penalties for Kalshi, following neighboring Arizona. With this development, the CFTC's lawsuit against Utah and Kalshi's appeal to the US 10th Circuit Court of Appeals become more pivotal for the company.

Brown announces criminal counts against Kalshi and executives

Utah Attorney General Derek Brown shared the filing against Kalshi, Lara, and Mansour on Wednesday. The charges include a Class A misdemeanor, a second-degree felony and 12 third-degree felonies against Kalshi, Lara, and Mansour.

In Utah, Class A misdemeanors carry penalties of up to 364 days in jail and a $2,500 fine. Third-degree felonies are punishable by up to five years in prison and a fine of up to $5,000.

Second-degree felony convictions can mean prison time of up to 15 years and a $10,000 fine. All of the third-degree felony counts are for "online gambling promotion," while the second-degree felony charge is a "pattern of unlawful activity" and the misdemeanor count is "general gambling promotion."

Brown bases the charges on trading activity that an agent for his office performed using a Utah address and while physically located within the state. While Brown did not issue warrants for Lara's or Mansour's arrests, the co-founders have been summoned to respond to the charges.

The charges place new emphasis on civil litigation ongoing in the US District Court for the District of Utah.

CFTC lawsuit seeking injunction against Utah takes on familiar importance

If past events in Arizona replicate themselves, Lara and Mansour may not have to appear in Utah state court. After Arizona Attorney General Kris Mayes filed criminal charges against Kalshi, a lawsuit victory by the US Commodity Futures Trading Commission (CFTC) successfully stymied those proceedings.

CFTC Chair Michael Selig has already asked the Utah district court for similar injunctive relief against Brown and other Utah officials. The criminal filings may prompt new briefs in that case urging the federal court to rule swiftly on the motion for a preliminary injunction at minimum.

The Utah district court has already denied a similar motion from Kalshi. These criminal filings and a civil lawsuit against Kalshi in state court are new developments since that ruling came down, though.

The 10th Circuit has also rejected Kalshi's pleas for a preliminary injunction. However, it has yet to rule on the merits of Kalshi's appeal and the state's action since that time could warrant the 10th Circuit taking a different tone.

Multiple paths to relief for Kalshi and execs

When the district court and the 10th Circuit issued their decisions, no officials in Utah had taken action against Kalshi. Kalshi's pleas for injunctive relief were merely based on comments from Utah Gov. Spencer Cox and others, with the courts stating that wasn't sufficient cause for them to enjoin the enforcement of Utah law.

Brown has changed that conversation with his civil and criminal filings. Kalshi and Selig can point to these filings as evidence of actual harm.

At this point, Brown's efforts may be thwarted in any of several ways. The easiest path to that end would be the district court granting Selig's request for a preliminary injunction.

However, the 10th Circuit overturning the district court's summary judgment for Utah officials like Brown in Kalshi's lawsuit against those authorities could achieve similar ends. The first result could be more expedient, though.

Failing those results, Kalshi's path forward would be to attempt to remove the cases in state court to federal court. If that is unsuccessful, the recourse would be to defeat the allegations in state courts.

Mayes didn't get the chance to actually litigate the criminal charges against Kalshi in Arizona. Brown may face a similar roadblock in Utah, but federal court rulings so far have supported his efforts.

Ironically, it may be Brown's utilization of the authority that the district court and 10th Circuit affirmed that might prevent him doing exactly that.