Feds sue Utah over attempt to ban Kalshi; AG files criminal charges

SALT LAKE CITY — A week after the Utah Attorney General announced a civil lawsuit trying to ban online prediction markets under Utah's anti-gambling laws, the federal government responded with its own lawsuit. The Attorney General's Office has filed criminal charges against Kalshi.

Kalshi is a popular online sports betting platform that also lets users bet on real-world events. The company describes itself as a "prediction market" that operates through a federally regulated financial exchange under the oversight of the Commodity Futures Trading Commission.

Attorney General Derek Brown's civil complaint filed in 3rd District Court last week asked for all Kalshi enterprises to stop their "illegal conduct" of operating sports betting in Utah and to compensate the state for alleged harm done to its citizens.

"The illegal wagers that (Kalshi enterprises) offer to Utah residents under the guise of 'event contracts' are indistinguishable from traditional forms of gambling, including bets offered through sportsbooks. These illegal wagers violate Utah's prohibitions on gambling, fringe gambling and related conduct," the suit states.

The federal government and the Commodity Futures Trading Commission responded in a federal complaint filed Monday claiming Utah has no authority to ban "derivatives markets governed by federal law."

The event contracts targeted by Utah are "swaps" under the federal Commodity Exchange Act and the prediction markets targeted are approved designated contract markets that are regulated by the federal trading commission, the federal government said in the complaint. Utah's effort to prevent the prediction markets and swaps from operating in Utah "intrude(s) on the exclusive federal scheme Congress designed to oversee United States commodity derivatives markets," the federal lawsuit says.

"Commodity Exchange Act-regulated transactions are not gambling," the suit states. "The commission's exclusive jurisdiction precludes Utah from regulating or prohibiting them."

Congress enacted the Commodity Exchange Act due to the evolution of national future markets and repeated conflicts with state law, the lawsuit explains. The Commodity Futures Trading Commission was granted "exclusive jurisdiction" to regulate the markets and create a federal regulatory framework to prevent state laws that may try to regulate the transactions and exchanges, the complaint said.

"This comprehensive federal regulatory scheme expressly and impliedly preempts state gambling law as applied to event contracts," the suit says.

The federal commission has "extensive rules on what a board of trade must do to become a designated contract market," and several have already been approved, including Kalshi, the suit says.

"Utah, however, is attempting to block the operation of exchanges that the commission has expressly approved, as well as event contracts that have been self-certified to the commission and that the commission has permitted to be listed," the lawsuit states. "These consequences directly harm the federal government's sovereign, legally protected interest in enforcing federal law."

The attorney general's office filed criminal information Wednesday, charging KalshiEx, LLC, with a pattern of unlawful activity, a second-degree felony; twelve counts of online gambling promotion, a third-degree felony; and a class A misdemeanor of general gambling promotion.

The charges cite 12 different instances in which Kalshi "derived proceeds from multiple episodes of online gambling promotion," for wagers on various sports games, including football and hockey games in Utah.

Starting on Sept. 13, Agent Scott Eggerman began investigating Kalshi by creating an undercover account. The charges allege that Kalshi then allowed Eggerman to place wagers on 12 different games despite his repeatedly confirming his location in Utah.

The charges also name co-founder and Kalshi CEO Tarek Mansour and co-founder and Kalshi COO Luana Lopes Lara as defendants.

Despite recent court decisions that the attorney general said sided with Utah's gambling laws following a lawsuit Kalshi filed against Utah in February, "Kalshi, Tarek Mansour, and Luana Lopes Lara have continued to provide or offer to provide online gambling to individuals in the State of Utah," the charges state.

The federal government claims there are "numerous direct conflicts" between Utah law and federal law, including that commission regulations require designated contract markets to provide "impartial access" to all eligible participants nationwide. Utah's attempt to enforce its anti-gambling laws in this situation would violate that rule by forcing markets to deny event contracts to Utah residents, the suit states.

Utah is not the first state that "has attempted to invade the commission's exclusive jurisdiction over swaps," the suit states. Specifically, the federal government has brought actions against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin for attempting to enforce gambling laws in similar situations, according to the lawsuit.

In response, several federal courts have "swiftly responded by issuing or affirming temporary restraining orders and preliminary injunctions barring the states from enforcing their gambling laws against CFTC-regulated exchanges that offer sports-related or other event contracts," the federal government said in the suit.

The federal government's complaint asks the court to dismiss the attorney general's suit, enforce the federal commission's "exclusive jurisdiction" over the designated contract markets and declare that Utah's anti-gambling laws have no authority over these federally regulated markets.

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