Mass. high court doubts Kalshi’s federal preemption claim

At a hearing in Boston, the Massachusetts Supreme Judicial Court questioned Kalshi’s argument that federal commodities law prevents the state from enforcing its gambling statutes against the exchange.

Kalshi operates an online marketplace where users buy and sell small-stakes contracts that pay out based on the outcomes of real-world events, including economic measures, elections and weather.

Massachusetts prosecutors told justices the platform functions like a betting operation that lets users place monetary stakes on event results and therefore falls within state prohibitions on unlicensed wagering.

Attorneys for Kalshi argued the contracts are exchange-traded instruments governed by the Commodity Exchange Act and regulated by the Commodity Futures Trading Commission. They said CFTC approval of certain event contracts displaces conflicting state law.

Justices repeatedly questioned how the federal statute’s text and structure would bar Massachusetts from policing wagering within its borders. “How does the statute prevent Massachusetts from policing wagering?” a justice asked during oral argument.

State lawyers raised public-policy concerns about protecting residents from games of chance outside state-licensed systems and safeguards. Kalshi’s counsel pointed to statutory language and the CFTC’s regulatory history in urging a ruling that federal law occupies the field for standardized event contracts.

If the court rejects Kalshi’s preemption defense, the company could face an injunction or penalties that would prevent it from operating in Massachusetts. A ruling for Kalshi on preemption would narrow the reach of state gambling laws over products that resemble financial derivatives.

The outcome could affect other online markets that let people take positions on future events, shaping where platforms operate and how regulators apply state wagering laws alongside federal commodity rules.

The case centers on whether federal oversight by the CFTC displaces state enforcement and whether statutory definitions cover Kalshi’s specific contracts. The Supreme Judicial Court indicated it will closely examine statutory text and regulatory history before issuing a decision.