Arizona charges Calci with misdemeanor criminal charges for allegedly illegal gambling

The Arizona Attorney General filed misdemeanor criminal charges against Calci, accusing the prediction platform of running an illegal gambling and election betting operation in the state.

These are the first criminal charges brought against Calci, although the company has been involved in numerous lawsuits and investigations and has received dozens of cease-and-desist letters across the country.

Prediction platforms like Kalshi have drawn comparisons to online sports gambling because they allow users to bet on the outcomes of events in popular culture, politics, sports, and more.

Many states have argued that legalizing and regulating sports betting falls within the purview of local regulators and outside the authority of the Commodity Futures Trading Commission, which regulates event contracts and prediction markets.

States, including Michigan and Massachusetts, have filed civil lawsuits seeking to halt operations or force Calci to meet gambling licensing requirements.

In the Arizona filing, Attorney General Chris Mayes charged Kalci with 20 counts of accepting various bets in Arizona without a license, including bets on state elections, which is separately and expressly prohibited under Arizona law.

“No company has the right to decide for itself which laws to follow,” Mayes said in a statement.

Kalshi differentiates between the event contracts it offers and what sportsbooks and casinos offer.

“Unfortunately, a country can bring criminal charges under false pretenses,” the company said in a statement to CNBC. “States like Arizona want to individually regulate financial exchanges nationwide, and are trying every trick available to do so. As other courts have recognized and the CFTC has affirmed, Calc is subject to federal jurisdiction.”

Last week, Calci filed a preliminary injunction to try to block Arizona from enforcing the state’s laws.

On Tuesday, federal Judge Michael Liburdi denied Calci’s request for a temporary restraining order and ordered Calci to explain why the case was transferred to federal court in light of the state’s charges against Calci.

Calci preemptively sued to prevent other states from taking punitive action, a strategy Mayes described as bullying states, “and going to federal court to try to avoid accountability.”

Gaming attorney Daniel Wallach meticulously tracks claims and counterclaims against prediction platforms. He described preemptive lawsuits as Kalshi’s modus operandi.

“The strategy of winning the race to court has proven to be an effective tactic thus far,” Wallach said, pointing to Calci’s legal victories in obtaining preliminary injunctions in New Jersey and Tennessee.

Wallach is not involved in any of Kalshi’s legal disputes.

However, the Arizona Attorney General’s Office highlighted Calci’s recent loss of a preliminary injunction against the state of Ohio, with federal Judge Sarah Morrison saying Calci’s concerns “were outweighed by the State of Ohio’s interest in exercising its police authority, enforcing its duly enacted laws, and regulating sports gambling to promote the public interest.”

CFTC Chairman Michael Selig recently told CNBC that the agency will require prediction platforms, which currently self-certify, to do a better job of restricting contracts for events that encourage manipulation, such as, for example, questions about whether an athlete will suffer an injury.

A bipartisan bill has been introduced in the House that would ban contracts for sporting events, unless the state specifically allows them. The bill would also completely ban market predictions about elections and government actions.

As lawmakers, regulators and courts grapple to define what constitutes gambling, 61% of Americans report they view event contracts in prediction markets more like gambling than investing, according to a poll released Tuesday by Ipsos and the American Institute of Boys and Men.

Disclosure: CNBC and Kalshi have a business relationship that includes a minority investment in CNBC.