Securities Regulation Daily Wrap Up, FEDERAL PREEMPTION—D.N.J.: NJ gaming regulator says state law governs Kalshi contracts, (Apr 21, 2025)

By Anne Sherry, J.D.

Earlier this month, Nevada regulators were enjoined from taking action over the event contracts.

Fighting KalshiEX’s request for a preliminary injunction, New Jersey’s gambling regulator said that state gambling laws are not preempted by the Commodity Exchange Act. Kalshi is a CFTC-regulated exchange that offers contracts on the outcomes of future events—contracts which regulators in New Jersey and Nevada argue violate state law (Brief for Defendants, KalshiEX LLC v. Flaherty, No. 25-cv-2152 (Apr. 18, 2025)).

The gaming regulators in Nevada and New Jersey sent Kalshi cease-and-desist letters stating that certain Kalshi event-based contracts are illegal “contracts on sporting events and election outcomes” (Nevada) and “unauthorized sports wagers” (New Jersey). Kalshi, in turn, sued the regulators to block the cease-and-desist actions. The exchange argues that the event contracts fall within the exclusive jurisdiction of the CFTC.

On April 9, the district court in Nevada enjoined state authorities from taking action over Kalshi’s sport contracts.

New Jersey. The Division of Gaming Enforcement asserts that Kalshi cannot avoid a 125-year history of state gambling regulation by packaging sports wagers into CFTC-regulated event contracts. If the Commodity Exchange Act (CEA) applies to the contracts (which the Division disputes), Kalshi must comply with that federal law, but it cannot do so in violation of state law.

The CEA references state law and expressly preempts some state laws, but not the sports-related event contracts at issue in this case, the Division asserts. The presumption against preemption applies to the Sports Wagering Act, which lies at the heart of the state’s traditional police powers. And this is not one of the “rare cases” where Congress legislated so comprehensively in the field that it left no room for state law.

The Division took issue with Kalshi’s argument that its event contracts are “swaps,” noting that if this were true, then games of chance like raffles would also be swaps, and any casino offering sports wagers would be violating the CEA. And if the event contracts do not fall within the CFTC’s exclusive jurisdiction, the CEA expressly preserves state law.

Kalshi is unlikely to succeed on the merits, and it does not face irreparable harm: Kalshi can accept nearly all sports wagers in the state by obtaining a license and complying with the New Jersey Sports Wagering Act; for the prohibited wagers involving college sporting events, Kalshi’s harm is speculative and purely monetary.

Nevada. The Division says the Nevada ruling in Kalshi’s favor does not alter this conclusion.

The Nevada court determined that Kalshi was likely to succeed on the merits of its case because the Commodity Exchange Act preempts state law in this instance. If Kalshi were offering its contracts without CFTC designation, the state gaming authorities could regulate it, the court reasoned. But because Kalshi is a CFTC-designated contract maker, Nevada regulatory agencies have no jurisdiction to decide that Kalshi’s conduct violates state law, at least so long as the contracts have not been declared illegal under federal law.

The New Jersey regulator argues that the Nevada court failed to consider various provisions of the CEA in any depth. This includes the threshold inapplicability of the exclusive-jurisdiction provision, the savings clauses, the rule’s reference to state law, and the CEA’s narrow preemptive provisions that do not cover the Kalshi sports contracts. The court effectively ruled that event contracts are immune from any state law, which was not Congress’s intent.

The case is No. 25-cv-2152.

Attorneys: Gurbir S. Grewal (MilBank LLP) for Kalshiex, LLC. Emily M. Bisnauth, Attorney General of New Jersey, for Mary Jo Flaherty.

Companies: Kalshiex, LLC

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