A judge in Washington State has temporarily blocked Kalshi from operating after disagreeing with their claim that federal law allows them to bypass state gambling regulations. The court believes Washington is likely to win its case against the prediction market, but a final decision and any restrictions won’t be made until August.
Key Takeaways
- Washington judge finds state gambling laws are not federally preempted.
- Kalshi must preserve records while broader injunction terms are finalized.
- Parties must propose restrictions by Aug. 3 ahead of an Aug. 5 order.
Court Says Federal Registration Does Not Displace State Law
King County Superior Court Judge John McHale granted Washington’s motion for a preliminary injunction against Kalshi on Monday, finding the state is likely to show that its event contracts violate gambling and consumer-protection laws. The decision advances a lawsuit filed in March by Attorney General Nick Brown, who accused the federally registered exchange of operating an unlicensed online gambling business.
Judge McHale quickly instructed Kalshi to save all records related to customers in Washington state. The full details of how Kalshi will operate are still being worked out. Both sides need to submit their proposals – either agreed upon terms or competing ideas – by noon on August 3rd. The judge plans to issue a final order outlining the exact rules of the agreement by August 5th.
As an analyst, I’m still waiting for clarity on a few key details following the ruling. Specifically, we don’t yet know *how quickly* Kalshi needs to implement geofencing in Washington state, *which types* of event contracts will be affected by restrictions, or *what happens* with current customer holdings. The court has sided with the state for now, but is delaying specific instructions on how to put that decision into action until its August order.
As an analyst following this case, my understanding is that Kalshi contended their contracts shouldn’t be subject to Washington’s gambling laws because of the Commodity Futures Trading Commission’s authority over designated contract markets. However, Judge McHale disagreed, stating the federal law doesn’t override state gambling regulations and Kalshi is capable of meeting both sets of requirements – both federal and Washington State.
The judge emphasized that federal law maintains the power of state regulators and courts. He specifically referenced a part of the law dealing with event contracts related to gambling, explaining that states still have the final say in defining what constitutes illegal gambling within their own boundaries.
Judge McHale also dismissed Kalshi’s argument about equal access rules from the CFTC. While Kalshi claimed that federally regulated exchanges must serve all users regardless of location, the judge determined those rules don’t force a platform to offer contracts in places where doing so would break state laws.
The case began in King County Superior Court before Kalshi removed it to federal court. US District Judge John Coughenour returned it to state court in May, finding that Washington’s complaint sought to enforce state gambling laws and did not create federal jurisdiction merely because Kalshi planned to raise a federal defense. The Ninth Circuit declined to pause that remand.
Kalshi spokesperson Jacki McGavick said states lack jurisdiction over prediction markets and cited decisions including the Third Circuit’s April ruling. That divided appeals court protected Kalshi from New Jersey regulators, holding that federal law likely preempts state restrictions on sports contracts traded through a CFTC-registered exchange.
Washington’s decision points in the opposite direction and follows Kalshi’s recent injunction defeat in New York, where a judge also found the CEA did not displace state gambling rules. The conflicting results leave Kalshi protected in parts of the Third Circuit while facing mounting restrictions elsewhere.
The court in Washington hasn’t yet made a final decision on the state’s lawsuit or ordered Kalshi to pay any penalties or refunds. However, its initial assessment already strengthens the attorney general’s position and represents another state court ruling against Kalshi’s argument that being federally regulated prevents states from enforcing their own gambling laws.
2026-07-21 13:58