TLDR
- The Second Circuit denied Kalshi and Coinbase’s requests to pause state gambling enforcement in New York and Connecticut.
- The ruling, dated November 3, covers three separate appeals involving the two companies.
- The order does not force either company to stop trading or close existing positions.
- New York’s possible damages claim against Kalshi has been placed at $36 billion.
- Federal appeals courts remain divided on whether federal derivatives law overrides state gambling rules.
A federal appeals court has refused to shield Kalshi and Coinbase from state gambling enforcement in New York and Connecticut. Both prediction market operators must now keep fighting state officials without temporary court protection.
The US Court of Appeals for the Second Circuit issued the ruling on November 3. It covers three separate appeals involving the two companies.
Kalshi is challenging enforcement actions by the New York State Gaming Commission and the Connecticut Department of Consumer Protection. Coinbase is fighting a separate action brought by Connecticut Attorney General William Tong.
A three-judge panel declined to grant injunctions while the appeals move forward. The two-page order gave little detail, saying only that the companies had not shown enough grounds for temporary relief.
What the Ruling Does and Does Not Change
The order does not settle the main legal question in the cases. It also does not require either company to stop trading or close out existing positions.
Instead, Kalshi and Coinbase lose the temporary protection they had asked for. Both must continue defending their legal position as the cases proceed.
At the center of the fight is how sports event contracts should be classified. Kalshi and Coinbase argue that their sports products are “swaps” under the Commodity Exchange Act.
Under that view, the contracts fall under the Commodity Futures Trading Commission. The companies say this federal oversight prevents individual states from applying their own gambling laws.
New York and Connecticut disagree. Officials in both states treat sports event contracts as unlicensed sports bets that fall under their long-standing authority over gambling.
The financial stakes are large on both sides. New York sued Kalshi in July to block its sports contracts and seek penalties, with the state’s possible damages claim placed at $36 billion.
Connecticut took its own enforcement action against Kalshi in August. Coinbase recently said its prediction market business has more than $200 million in annualized revenue.
A Split Among Federal Appeals Courts
Kalshi has run into problems in other states as well. In July, it agreed to block Nevada residents from accessing contracts tied to sports, elections, and entertainment.
That agreement followed claims that Kalshi kept offering restricted products despite a court order. The company faced penalties of $120,000 per day if it did not put stronger geofencing in place.
Kalshi has also won in at least one state. In February, a federal judge in Tennessee ruled that its sports event contracts were swaps under the Commodity Exchange Act, which allowed the platform to keep operating there.
Federal appeals courts have reached different answers on whether federal derivatives law overrides state gambling rules. The Third Circuit sided with Kalshi in its dispute with New Jersey regulators.
The Sixth and Ninth Circuits, however, have sided with state regulators in other cases. Lower court judges in New York and Connecticut had also rejected Kalshi’s attempts to block state enforcement.
The Second Circuit’s November 3 order keeps those lower court outcomes in place for now. Kalshi and Coinbase will continue their appeals without temporary protection from New York and Connecticut enforcement.
