Kalshi and CFTC engage in oral debate about political contracts
Kalshi is currently facing scrutiny from the Commodity Futures Trading Commission (CFTC) concerning its political event contracts. Recently, the U.S. Court of Appeals for the District of Columbia Circuit engaged in a detailed oral argument with Kalshi and the CFTC regarding the legality, definition, and regulation of these contracts, given their increasing popularity.
During the oral argument, CFTC General Counsel Rob Schwartz pointed out, “The reason we’re here today is because a federally regulated exchange has turned itself into an online casino for betting on elections.” While noting that the court’s role is not to determine the morality of this activity but rather assess the CFTC’s authority to regulate it.
This legal confrontation between Kalshi and the CFTC originated in 2023 when the CFTC prohibited Kalshi from offering political markets due to state betting laws prohibiting wagering on political events. Following this ban, Kalshi filed a lawsuit against the CFTC, arguing that the commission lacked the jurisdiction to block its contracts. In a subsequent ruling, the District Court for the D.C. Circuit permitted Kalshi to proceed with its contracts.
Last year, the U.S. Court of Appeals for the D.C. Circuit upheld the district court’s decision, allowing Kalshi to offer its contracts leading up to the 2024 presidential election. Despite the CFTC’s claims of potential gambling harm and market manipulation resulting from Kalshi’s contracts, the exchange reported substantial interest in its contracts during the previous presidential election, receiving over $250 million in contracts from October to November 2024.
The oral argument delved into a comparison between political contracts and sports betting, questioning whether political contracts could be considered a form of entertainment or contest akin to sporting events. Schwartz raised the issue by stating, “If we agree that betting on sporting events is covered, why aren’t we betting on the ESPN ESPY Awards, the Grammys or TIME’s Person of the Year?” Kalshi’s legal counsel, Jacob M. Roth, emphasized the distinction between event contracts and gambling, suggesting that gaming in its broadest sense would overlap with the definition of event contracts.
Kalshi remains adamant about its position as a national provider of political event contracts, positioning these contracts as contingent money stakes, distinct from traditional gambling activities. The exchange has garnered support from ForecastEx, aligning with the district court’s decision and Kalshi’s stance on these contracts.
In a surprising move, Kalshi recently appointed Donald Trump Jr., the elder son of former President Donald Trump, as a strategic advisor following his expressed interest in the platform during the election period. CEO Tarek Mansour clarified that Trump Jr.’s role as a strategic advisor is not politically motivated, emphasizing a focus on strategic guidance for the company’s future endeavors.
As legal proceedings between Kalshi and the CFTC continue, the exchange remains committed to providing political event contracts while navigating regulatory challenges and asserting the unique nature of its offerings.
