Securities Regulation Daily Wrap Up, FEDERAL PREEMPTION—D. Conn.: Kalshi can’t block Connecticut cease-and-desist over sports betting, (Aug 11, 2026)

By Lene Powell, J.D.

The court noted that Kalshi itself has touted its platform as offering legal sports betting nationwide.

A Connecticut federal court denied the Kalshi exchange’s request for a preliminary injunction to block the state’s order for Kalshi to cease offering sports-related trading on its prediction markets platform. The court concluded that Kalshi was unlikely to succeed on the merits of its claim because the sports event contracts offered by Kalshi are not “swaps” under the Commodity Exchange Act (CEA), Connecticut’s gambling laws are not preempted by the CEA, and Kalshi did not show it would suffer irreparable harm if the injunction were not granted (KalshiEx LLC v. Cafferelli, No. 3:25-cv-02016-VDO (D. Conn. Aug. 10, 2026)).

Kalshi is suing to block a cease-and-desist order issued by the Gaming Division of the Connecticut Department of Consumer Protection regarding the event contracts it offers related to sports, like who will win the NCAA College Basketball Tournaments or the U.S. Open Golf Championship. The Division said Kalshi’s contracts are “void” and ordered it to stop offering unlicensed sports gambling in violation of Connecticut law.

Kalshi has also filed several similar lawsuits against other states. The CFTC and Department of Justice have also sued several states to assert exclusive federal jurisdiction over the contracts at issue.

Sports event contracts not “swaps.” The court found that Kalshi’s sports event contracts are not “swaps” under the exclusive jurisdiction of the CFTC. As a threshold matter, the court determined that it had authority to interpret the CEA because “it is emphatically the province and duty of the judicial department to say what the law is” and nothing in the CEA takes that away.

Next, the court decided that the “occurrence or nonoccurrence of an event” in a swap agreement is concerned with whether an event takes place and to what extent it occurs—not the outcome or results of the event.

“An ordinary American interpreting the word ‘event’ would conclude that the Kentucky Derby is an event,” the court wrote, quoting N. Am. Derivatives Exch., Inc. v. Nevada (D. Nev. 2025). “But who wins the Kentucky Derby is an outcome of that event, not a separate event in and of itself.”

Applying that to Kalshi, the court found that the exchange’s sports contracts depend on the outcome of sports events, not the occurrence or non-occurrence of the events. Therefore, they are not swaps.

The court also found that Kalshi’s position that sports-event outcomes are associated with financial consequences “knows no limiting principle,” the court said. For example, it was not clear why a “combo” bet on two teams, which Kalshi offers, is any different than a blackjack bet.

Further, the court observed that if Kalshi’s sports contracts are swaps, and the CEA provides that all swaps must be traded on CFTC-registered financial exchanges, that would mean that all sports betting must take place on CFTC-registered exchanges. Congress could not have intended to strip states of all authority to regulate sports betting, the court said.

Connecticut gambling laws not preempted. Next, the court concluded that Kalshi’s preemption arguments would still fail even if the contracts are swaps. Under the Supremacy Clause, federal law prevails when it conflicts with state law. But there has traditionally been a presumption against preemption where states have historically exercised their police powers. Historic police powers held by states are not to be superseded by federal statutes unless it was “the clear and manifest purpose of Congress” to do so, the court said.

There was no field preemption because the structure of the CEA, and particularly a “Special Rule” regarding event contracts, showed Congress’ intent that some state law and regulation should operate in tandem with the CEA.

“The Court finds it unlikely that, through Dodd-Frank, Congress intended to displace the States’ historic police powers over sports betting and instead vest exclusive regulatory authority over such activity in the CFTC—a relatively small financial regulator with no historical role or particular expertise in regulating sports betting,” the court wrote.

There was also no conflict preemption. Kalshi argued that it would be “impossible” for it to comply with both state and federal law, and that Connecticut’s laws were an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. But the court found that Kalshi had not shown either of these. It was not clear why Kalshi could not seek a license pursuant to Connecticut law.

No irreparable harm. Finally, the court found that Kalshi did not show that it faced irreparable harm requiring an injunction. Licensing fees are ordinary compliance costs, which are typically insufficient for irreparable harm. Kalshi has demonstrated in Nevada that it is able to geofence its services to exclude certain residents, so that was unlikely to impose significant new costs.

The court considered several possible harms overly conjectural, including the prospect of criminal prosecution, revocation of Kalshi’s CFTC registration, reputational harm, and disruption to users and markets.

This is case No. 3:25-cv-02016-VDO.

Judge: Oliver, V.

Attorneys: Andrew Leighton Porter (Milbank LLP) for KalshiEX, LLC. Joseph E. Gasser, Office of the Attorney General, for Bryan T. Cafferelli.

Companies: KalshiEX, LLC

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