Regulator’s Attempt to Block Election Betting Contracts Rejected by Federal Appeals Court

Voters work on their ballots at a polling station at the Elena Bozeman Government Center in Arlington, Va., on Sept. 20, 2024. AFP via Getty Images

A federal appeals court has rejected an attempt by U.S. financial regulators to block derivatives trading platform Kalshi from offering contracts that let people make speculative bets on the outcome of U.S. elections.

The U.S. Court of Appeals for the District of Columbia Circuit on Oct. 2 denied an emergency motion for a stay pending an appeal filed by the Commodity Futures Trading Commission (CFTC). The CFTC had sought to halt a district court’s decision that allowed Kalshi to offer financial market instruments enabling Americans to legally bet on elections in a regulated marketplace.

Circuit Judge Patricia Millett, writing for the three-judge panel, said the CFTC had not demonstrated sufficient evidence that the contracts would cause irreparable harm to the public or undermine the integrity of U.S. elections while the CFTC’s appeal is heard.

“Because the Commission has failed at this time to demonstrate that it or the public will be irreparably injured absent a stay, we deny its motion without prejudice to renewal should more concrete evidence of irreparable harm develop during the pendency of this appeal,” Millett wrote in the opinion.

Kalshi’s “Congressional Control Contracts” allow investors to bet on which political party will win control of the U.S. House of Representatives or Senate in federal elections. The CFTC argued that such contracts amount to illegal gambling or gaming and are prohibited under state laws.

The court found that the regulatory agency failed to substantiate claims that the contracts would lead to market manipulation or distort election outcomes.

During a Sept. 19 hearing, the three-judge appellate panel weighed the future of the derivatives trading platform’s Congressional Control Contracts after hearing arguments from both sides for more than two hours.

CFTC General Counsel Rob Schwartz argued that without a stay, the public could be exposed to profound harm, citing concerns that allowing individuals to wager up to $100 million on the outcomes of elections could lead to manipulation. He warned of potential public mistrust, particularly during a time when many Americans already feel democracy is under threat.

Kalshi’s attorney, Yaakov Roth, countered that the CFTC failed to meet the legal thresholds for a stay, arguing that there was no evidence of irreparable harm and that the commission had not demonstrated the merit of its case.

The hearing also delved into broader legal questions, including whether the Commodity Exchange Act preempts state gambling laws and how federal and state regulations intersect in governing event markets.

On Oct. 2, the appeals court acknowledged that the concerns raised by the CFTC are “understandable” given the potential impact of the “Congressional Control Contracts” on election integrity, which the court described as “the very lynchpin of our democracy.”

“But whether the statutory text allows the Commission to bar such event contracts is debatable, and the Commission has not substantiated that risks to election integrity are likely to materialize if Kalshi is allowed to operate its exchange during the pendency of this appeal,” the court’s opinion reads.

The ruling clears the way for Kalshi to offer election-related contracts on its platform, pending further legal proceedings.

Kalshi co-founder and CEO Tarek Mansour took to social media to praise the decision.

“US presidential election markets are legal. Officially. Finally. Kalshi prevails,” Mansour wrote in an Oct. 2 post on social media platform X.

The CFTC did not respond by publication time to a request for comment on the latest ruling.

The latest decision follows a lower court ruling in favor of Kalshi, which had sued the CFTC under the Administrative Procedure Act, accusing the regulator of exceeding its authority in blocking the predictions marketplace operator from offering such contracts.

Much like the appeals court panel did, the district judge also acknowledged the CFTC’s concern that allowing the public to trade on the outcome of elections raises questions as to whether it may be contrary to the public interest. However, District Court Judge Jia Cobb wrote in her Sept. 12 opinion that the CFTC had exceeded its statutory authority in ordering Kalshi to shut down its election betting marketplace.

Better Markets, a nonprofit that promotes public interest in financial markets, issued a critical response to Cobb’s Sept. 12 ruling.

“The stakes are high, as gambling on elections threatens to undermine our democracy, harm countless investors, and place the already under-staffed CFTC in the untenable position of trying to police election fraud and manipulation,” the nonprofit wrote in a statement.

John Haughey contributed to this report.