Appeals Court Denies Kalshi, Coinbase Injunctions in NY and CT

The U.S. Court of Appeals for the Second Circuit has denied requests from Kalshi and Coinbase for temporary injunctions against New York and Connecticut officials. The decision allows state regulators to continue enforcing gambling laws against the companies’ sports event contracts.

What Happened

On November 3, the U.S. Court of Appeals for the Second Circuit refused to issue injunctions requested by Kalshi and Coinbase, which sought to temporarily block New York and Connecticut officials from enforcing gambling laws on their sports event contracts (GamblingNews). The ruling involves three separate appeals, with Kalshi contesting enforcement actions by the New York State Gaming Commission and the Connecticut Department of Consumer Protection, and Coinbase challenging actions by Connecticut Attorney General William Tong, according to GamblingNews.

The three-judge panel’s two-page order stated that the companies had not demonstrated sufficient grounds for temporary protection as the cases proceed through the appeals process (GamblingNews). This decision means both Kalshi and Coinbase must continue defending their legal positions without the temporary protections they had sought, though the ruling does not compel them to halt trading or liquidate existing positions, GamblingNews reported.

Key Details

• The Second Circuit denied requests from Kalshi and Coinbase to block gambling law enforcement in New York and Connecticut, according to GamblingNews.
• The dispute centers on whether sports event contracts are regulated under federal derivatives law, specifically the Commodity Exchange Act, or state gambling laws (GamblingNews).
• New York filed a lawsuit against Kalshi in July, seeking to block sports contracts and impose financial penalties, with possible damages pegged at $36 billion, GamblingNews reported.
• Kalshi reached an agreement in July to block Nevada residents from accessing contracts for sports, elections, and entertainment after allegations of supplying restricted products, risking penalties of $120,000 per day, GamblingNews stated.

Why It Matters

This ruling reinforces the ongoing legal challenges faced by prediction market operators seeking to define their products under federal derivatives law rather than state gambling regulations. Kalshi and Coinbase contend their sports-related products function as “swaps” under the Commodity Exchange Act (CEA), placing them under the Commodity Futures Trading Commission (CFTC) and precluding state gambling laws, according to GamblingNews.

Conversely, New York and Connecticut officials consider these sports event contracts equivalent to unlicensed sports bets, asserting their traditional jurisdiction over gambling activities (GamblingNews). This legal divergence has resulted in a patchwork of conflicting court decisions across the U.S. Federal appeals courts have issued differing conclusions, with the Third Circuit siding with Kalshi in New Jersey, while the Sixth and Ninth Circuits have sided with state regulators in other cases (GamblingNews). Notably, a federal judge in Tennessee ruled in February that Kalshi’s sports event contracts were CEA-governed swaps, allowing its operation in that state, GamblingNews reported.

What’s Next

The latest ruling by the Second Circuit means Kalshi and Coinbase must continue to defend their legal positions without temporary protection as their cases proceed through the appeals process (GamblingNews). Connecticut is also pressing Coinbase, which reported over $200 million in annualized revenue from its prediction market business, underscoring the financial implications of these ongoing legal battles (GamblingNews).