The Gavel: Kalshi, prediction markets face legal hurdles

The Hill's weekly courts news digest.

By Ella Lee and Zach Schonfeld   |   Wednesday, April 8 By Zach Schonfeld and Ella Lee Wednesday, April 8 © Getty Images Kalshi, prediction markets face legal hurdles  Prediction markets are caught in legal crosshairs to determine how they are to be regulated as questions also swirl around the ethical nature of the business with the Iran war being pulled in. And as states dangle civil prosecution and criminal charges, Kalshi and other platforms are heading to court.   At the center of the battle is whether prediction markets are more akin to a wager on the next game at a sportsbook or a trade on grain futures.  If it’s the former, prediction markets are subject to state gambling laws. If it’s the latter, the federal Commodity Futures Trading Commission (CFTC) can get exclusive regulatory control.  In other words, it’s a fight about state versus federal power.  Kalshi wants the CFTC in charge, and the commission agrees. The company has taken to suing various state gambling commissions that’ve pushed for oversight.  “Kalshi's contracts differ fundamentally from bets offered by sportsbooks,” the platform wrote in court filings.  The legal fight is heating up as prediction markets’ popularity soars. Monthly trading volume swelled from $1.2 billion in early 2025 to $20 billion as of January, according to blockchain intelligence company TRM Labs.   The battle could ultimately reach the Supreme Court. Kalshi’s fight with two states with massive commercial gambling industries, Nevada and New Jersey, are inching the issue closer.  On Monday, the U.S. Court of Appeals for the 3rd Circuit allowed Kalshi to operate in New Jersey as the company’s appeal proceeds. The court ruled Kalshi is likely to succeed in its argument that federal law preempts New Jersey’s regulations.  “This state regulation is exactly the patchwork that Congress replaced wholecloth by creating the CFTC,” wrote U.S. Circuit Judge David Porter, who was nominated to the bench by President Trump.  Roughly three dozen states, led by both parties, had voiced support for New Jersey.  As the 3rd Circuit sides with Kalshi on the east coast, the company is gearing up on the west coast for a massive fight in the U.S. Court of Appeals for the 9th Circuit.  Next week, it will hear arguments in the Nevada battle. The gambling capital of the U.S. is fighting to regulate prediction markets offered by Kalshi, Crypto.com and Robinhood.    The companies’ appeals come after a federal judge sided with the state. He invoked the late Supreme Court Justice Potter Stewart, who famously wrote in a 1964 opinion about pornography, “I know it when I see it.”  “These are sports wagers and everyone who sees them knows it,” U.S. District Judge Andrew Gordon, an appointee of former President Obama, wrote of Kalshi’s operations.  At the 9th Circuit, the fight will go before a three-judge panel all composed of Trump appointees: U.S. Circuit Judges Ryan Nelson, Bridget Bade and Kenneth Lee.  The core question is how to interpret the Commodity Exchange Act (CEA), a federal law originally enacted during the Great Depression over concerns about market manipulation in commodity markets.  Amendments passed in the 1970s established the CFTC. It now has “exclusive jurisdiction” over “swaps or contracts of sale of a commodity.... traded or executed on a contract market designated” by the commission.  The commission supports Kalshi’s argument that the statute preempts state oversight of prediction markets, and they must butt out.  “We've got a broad definition of the term commodity,” CFTC Chairman Michael Selig said on CNBC this week.  “The CFTC regulates commodity derivatives and that includes events on sports, on politics and virtually everything else except for onions and motion picture box office receipts. So when we saw these state regulators suing our exchanges, we had to step in.”  The focus in the lawsuits has little to do with other raging questions about prediction markets, including what topics should be off limits and the issue of insider trading.  Kalshi says it takes measures to combat insider trading. In February, it announced disciplinary action against an editor for the popular YouTube creator MrBeast and a longshot California gubernatorial candidate.  But questions have continued, including as the U.S. war with Iran intensifies.   Just before Iran’s Supreme leader, Ayatollah Ali Khamenei, was killed in an Israeli air strike in February, an account trading under the username “Magamyman” made more than $553,000 betting on the nation and its head, NPR reported.   Some of those bets have raised ethical questions. Polymarket recently took down a market concerning the search-and-rescue operation for the airman shot down over Iran.   It’s also led to criminal scrutiny. Arizona Attorney General Kris Mayes (D) filed a 20-count criminal information against Kalshi over allegations that the platform is operating an illegal gambling business in the state without a license, in addition to election wagering.  While Mayes’s charges are the first, states like Connecticut and Illinois have sent cease-and-desist letters to several platforms they say are conducting unlicensed online gambling. The Trump administration sued the three states to challenge their regulation efforts.   As part of the Dodd-Frank Act legislation passed following the 2008 financial crisis, the CFTC now has more authority to stop certain markets. The commission can do so by deeming a certain offering “contrary to the public interest.” It must involve any of six things:  1. Activity unlawful under any federal or state law  2. Terrorism  3. Assassination  4. War  5. Gaming  6. Other activity determined to be contrary to the public interest under CFTC regulations  Importantly, it leaves the CFTC discretion. Even if one of the criteria is met, the commission “may” intervene. It isn’t mandatory.    Welcome to The Gavel, The Hill’s weekly courts newsletter from Ella Lee and Zach Schonfeld. Click above to email us tips, or reach out to us on X (@ByEllaLee, @ZachASchonfeld) or Signal (elee.03, zachschonfeld.48).   Not already on the list? Subscribe here. IN FOCUS Blanche at DOJ's helm; POTUS records in flux Blanche steps into limelight as acting AG  Todd Blanche, Trump’s criminal defense attorney-turned-administration acolyte, will helm the Justice Department following the ouster of former Attorney General Pam Bondi — at least, for now.   The former New York prosecutor and white-collar defense attorney followed Trump into government after defending the president in three of the four criminal cases that trailed his ascent to the White House.   As Blanche steps into the role of acting attorney general, it begs the question: Will he do anything differently?  “How I will lead differently? I'm not comparing myself to Attorney General Bondi,” Blanche told reporters Tuesday.   “I'm going to lead the way that I've been leading as the Deputy Attorney General, which is a job that requires, obviously, the same type of leadership I need to have now,” he said.   Both Bondi and Blanche have been staunchly loyal to Trump, from abiding to his policy agenda to aggressively pursuing his political enemies with criminal prosecutions.   Blanche also made the remarkable point to insist that no one but Trump himself knows why he has assumed the position. “Nobody has any idea why the attorney general is no longer the attorney general,” Blanche said.  With Blanche in the number one spot, it remains a question whether he will take a different tact in pursuit of Trump’s retribution campaign.   Already, criminal cases were launched against former FBI Director James Comey, New York Attorney General Letitia James (D) and former national security adviser John Bolton. The cases against Comey and James were dismissed by a judge, which DOJ has appealed.   On top of that, there are investigations into Federal Reserve chair Jerome Powell, Fed board of governors' member Lisa Cook, Sen. Adam Schiff (D-Calif.), and others.  Blanche helped purge prosecutors who worked on the federal criminal case against Trump and Jan. 6 prosecutions, and he personally signed court filings advocating to dismiss then-New York City Mayor Eric Adams’s (D) criminal corruption case. He also pushed for charges to be filed against mistakenly deported man Kilmar Abrego Garcia.   Perhaps most notably, he led the Justice Department’s talks with Ghislaine Maxwell, the longtime accomplice of disgraced financier Jeffrey Epstein, as Bondi’s grasp on mitigating fallout for Trump slipped.   Trump called Blanche a “very talented and respected Legal Mind” when announcing he’d assume the top DOJ post. It was a strong endorsement for the man who has staked his career on defending the president.   Blanche was forced to give up his partnership at Cadwalader, Wickersham & Taft — one of the largest law firms in the world after merging with Hogan Lovells — to take on Trump as a client.   As he spoke Tuesday, he made clear it's a move he doesn’t seem to regret.   “I love working for President Trump; it's the greatest honor of a lifetime,” Blanche said. “And if President Trump chooses to keep me as acting, that's an honor. If he chooses to nominate me, that's an honor. If he chooses to nominate somebody else and I go back to being the DAG (deputy attorney general), that's an honor.   “If he chooses to nominate somebody else and asks me to go do something else, I will say, ‘Thank you very much. I love you, sir,’” he continued. “So, I don't have any goals or aspirations beyond that.”  Bondi may not be alone in her ouster.   CBS reported that Stanley Woodward, DOJ’s number three official, may soon be ousted too. And Harmeet Dhillon, the civil rights division chief, may see a promotion.   Presidential records in flux   The future of presidential recordkeeping is uncertain after a Justice Department opinion signaled a major overhaul on the horizon.   DOJ’s Office of Legal Counsel (OLC) issued a nonbinding opinion last week that said a federal law requiring presidents to preserve and hand over presidential records to the government at the conclusion of their term is unconstitutional.    The Watergate-era Presidential Records Act mandates that presidential records belong to the U.S. government and must be transferred to the National Archives after a presidency ends. After five years, most of those records can be accessed by the public through Freedom of Information Act requests.  If the OLC’s opinion holds, it could give Trump and future presidents a free pass to refuse turning over documents when their White House tenure ends.   But detractors of the office’s findings are working to stop that from happening.   On Tuesday, watchdog American Oversight and the American Historical Association filed a lawsuit challenging the memo. The groups argue that the finding “nullified” determinations by Congress and the Supreme Court so Trump can “claim these official government records to be his own.”  “Since Watergate, Congress has made clear that presidential records belong to the American people — not to any one president,” said Chioma Chukwu, executive director of American Oversight. “The DOJ is now pushing a sweeping view of presidential power that would hand control of those records to the White House — a position the Supreme Court has already rejected.   “The White House does not get to decide what is preserved, what is hidden, or what is destroyed,” she added.   The groups are asking a federal judge to deem the Presidential Records Act constitutional and bar the Trump administration from relying on the opinion.   They also say Trump should be barred from retaining, destroying, disposing or otherwise handling presidential records in a manner that violates the Presidential Records Act — in his personal capacity, after the end of his term — in addition to directing him to turn them over.   The Presidential Records Act was at the heart of the 2023 criminal case Trump faced for allegedly keeping classified documents from his first term at his Mar-a-Lago resort in Florida. He faced a 40-count indictment, but the case was dropped after he was reelected in November 2024.  SIDEBAR 5 top docket updates Frosty reception for birthright citizenship restrictions: The Supreme Court seemed doubtful of Trump’s executive order aimed at ending birthright citizenship during oral arguments, which Trump attended, making him the first known sitting president to attend an argument at the court.    Lawsuits flying on Trump’s mail voting order: Trump’s new executive order restricting mail-in voting has quickly come under legal challenges. Separate suits have now been filed by the Democratic National Committee, Democratic-led states, the NAACP, LULAC and the League of Women Voters.  Alito fell ill at March event: The Supreme Court confirmed that Justice Samuel Alito sought medical attention after feeling ill at a March event in Philadelphia. Before the rare statement from the court, CNN had reported that Alito was taken to a hospital but returned home that night.   Jan. 6 civil suit proceeds: A federal judge ruled that a civil suit brought against Trump for his actions on Jan. 6, 2021, may proceed in court.  Powell subpoenas stay blocked: A federal judge said he would not reconsider his decision blocking Justice Department subpoenas of the Federal Reserve and its chair, Jerome Powell.  In other news Tariff refund leader added to S&P’s small-cap index: Atmus Filtration, the Nashville-based company that has emerged as the lead plaintiff for 300,000+ importers owed refunds of Trump’s tariffs, will join the S&P SmallCap 600 prior to the opening bell Thursday. The index tracks the small-cap segment of U.S. stocks. Atmus replaces an aircraft leasing company being acquired by a larger firm.  It may no longer be the leader: A few weeks back, we covered how Atmus Filtration wasn’t thrilled about being the lead plaintiff for everyone needing refunds, but the judge said they were stuck and he wouldn’t let another company take the mantle. Well, Atmus Filitration on Tuesday suddenly dismissed its lawsuit entirely without explanation. The company’s attorney declined to comment. Blake Lively - Justin Baldoni dispute: A federal judge in New York tossed out actress Blake Lively’s sexual harassment claims against actor Justin Baldoni over their roles in the movie “It Ends With Us" but said three retaliation claims could proceed to trial. Lively said in an Instagram story that the ruling “allows the heart of my case to be presented to a jury next month,” while Baldoni’s lawyers said it “confirms what the legal team believed from day one.”  THE ORDER LIST Cases the Supreme Court is taking up — or passing on — this term. In: Veteran judicial review  The Supreme Court’s March session is now concluded. Before wrapping up, the justices agreed to take up one new case.   It’s the petition we told you last week to keep an eye on, Johnson v. United States Congress.  The Supreme Court will decide if incarcerated veterans may challenge the constitutionality of a veterans’ benefits law. It will likely be heard next term.  The appeal comes from Floyd Johnson, an Army veteran sentenced to 40-years' imprisonment for convictions on several state felonies.  While behind bars, Johnson was diagnosed with post-traumatic stress disorder (PTSD). Federal law limits his disability payments because of his incarceration. Johnson wants to challenge that limit as unconstitutional.  A lower court ruled the Veterans’ Judicial Review Act bars his suit. The Supreme Court will now review if that’s correct.  The announcement came with little surprise. The Trump administration urged the justices to take up his case, even as they maintained the lower court got it right.  “But that decision conflicts with precedent of two other circuits; the question presented is recurring and important; and this case is a suitable vehicle for resolving the question. This Court’s review is therefore warranted,” Solicitor General D. John Sauer wrote in court filings.  Out: Bannon, city councilman’s criminal convictions  The Supreme Court cleared the way for two convictions to be thrown out: Trump ally Steve Bannon’s and ex-Cincinnati City Council member Alexander “P.G.” Sittenfeld’s.   Each petition was granted only for the justices to vacate lower court rulings and kick the cases back there, where they’re expected to be dismissed.   The Justice Department asked in February to dismiss Bannon’s two contempt of Congress convictions, and Sittenfeld was pardoned by Trump, which the government said should lead to his case’s dismissal, as well.  The cases are Bannon v. United States and Sittenfeld v. United States.  The rulings, taken in conjunction, amount to a unique crystal ball for a third party: Trump adviser Peter Navarro, who is appealing his contempt of Congress conviction, as well.   Navarro’s case is not yet at the Supreme Court, but his case is at the crossroads of Bannon’s and Sittenfeld's.   Like Bannon, he was convicted on contempt of Congress charges, already served his time and has seen the Justice Department drop its defense of his prosecution. But like Sittenfeld, Navarro has signaled he wants the justices to weigh his appeal, regardless.   Given Monday’s outcomes, it seems unlikely he’ll get that wish. Maybe: Ruby Tuesday retirement benefits  The Supreme Court asked the Trump administration to weigh in on Aldridge v. Regions Bank before deciding whether to take it up.  It’s called a “Call for the Views of the Solicitor General,” or CSVG, for short.  The justices often go with the recommendation, so we’ll have our eyes out for it. But that still may be months away.  The case involves a lawsuit brought by former employees of the restaurant chain Ruby Tuesday. They were enrolled in a “top-hat” retirement plan for highly compensated employees.  They are asking the Supreme Court to revive their suit against Regions Bank over decisions it made about the employees’ retirement benefits when the restaurant chain filed for bankruptcy in 2020. The case implicates questions about the Employee Retirement Income Security Act of 1974.  ON THE DOCKET Don’t be surprised if additional hearings are scheduled throughout the week. But here’s what we’re watching for now:   Today A federal judge in Rhode Island is set to hold a preliminary injunction hearing in a challenge to a requirement from DOJ’s Office on Violence Against Women that grant recipients certify DEI and immigration compliance.  A federal judge in Minnesota is set to hold a preliminary injunction hearing in a challenge to the Department of Homeland Security’s reversal of a longstanding policy not to conduct immigration enforcement at “sensitive locations” like schools.   A Florida woman facing attempted murder charges after allegedly firing into the Beverly Hills home of Rihanna and A$AP Rocky is due back in court, where a date for her preliminary hearing is expected to be set.   Thursday The U.S. Court of Appeals for the 2nd Circuit is set to hold oral arguments in rapper Sean “Diddy” Combs’s appeal of his conviction on two counts of transportation for prostitution.   Friday The U.S. Court of International Trade is set to hold a summary judgment hearing in small businesses and blue states’ bid to block to Trump’s new tariffs under Section 122.   Monday The U.S. Court of Appeals for the D.C. Circuit is set to hear oral arguments in the Trump administration’s appeal of a judge’s order barring the Trump administration from implementing or enforcing a civil investigative demand issued by the Federal Trade Commission on the progressive watchdog Media Matters.    The U.S. Court of Appeals for the 9th Circuit is set to hear oral arguments in 22 young Americans’ bid to revive their lawsuit against the Trump administration over the president’s executive orders declaring an energy emergency and rolling back measures fighting climate change.   Tuesday The Trump administration faces a deadline to provide an update on the progress it has made in refunding the president’s sweeping tariffs struck down by the Supreme Court.  A federal judge in Manhattan is set to oversee jury selection for disgraced Hollywood producer Harvey Weinstein’s third rape trial.   WHAT WE'RE READING Politico’s Dustin Gardiner: The woman who thinks civil rights went too far  WIRED’s David Gilbert: The DOJ Misled a Judge About How It’s Using Voter Roll Data  NPR’s Martin Kaste: Penalties stack up as AI spreads through the legal system  CBS News’s Arden Farhi: Did President Trump have a hand in writing the latest White House East Wing court filing?  The Associated Press’s David Lieb: What to know about the battle over lawsuits alleging that Roundup weedkiller can cause cancer  We’ll be back next Wednesday with additional reporting and insights. In the meantime, keep up with our coverage here. Questions? Tips? Love letters, hate mail, pet pics? Email us: elee@thehill.com and zschonfeld@thehill.com.  On Signal: @elee.03 and @zachschonfeld.48.  Privacy Policy   |   View in Browser    |   Manage Subscriptions Sign Up for Other Newsletters   |   Unsubscribe  400 N Capitol Street NW Suite 650, Washington, DC 20001 Copyright © 1998 - 2026 Nexstar Media Inc.   |   All Rights Reserved.

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