Paradigm Files Ninth Circuit Amicus in New Front of Prediction Market Battle

Yesterday, Paradigm filed an amicus brief in Blue Lake Rancheria v. Kalshi, a Ninth Circuit appeal of yet another lawsuit attacking federally licensed and regulated prediction markets. We’ve been in this fight from the beginning, standing lock-step with Kalshi against state regulatory grabs in New Jersey, Maryland, and Nevada. And while the challengers here (three California Indian tribes seeking to protect their gambling monopolies) are different, and the legal question here (whether the Indian Gaming Regulatory Act, IGRA, silently unwound Congress’s grant of exclusive authority over contract markets to federal regulators) is novel, the answer remains the same: the CFTC, not any state or tribal regulator, sets the rules for these markets. The district court got it right when it denied the tribes a preliminary injunction, and the Ninth Circuit should affirm.

While Kalshi and other prediction markets continue to fight these ill-advised actions on multiple fronts, this case would be the first to force an appellate court to consider the IGRA in this context. But just because an argument is novel does not make it good. It should not be surprising that the challengers in these actions would turn to untested theories; as Paradigm has repeatedly argued, and as the CFTC has now backed in its own amicus filing in a similar Ninth Circuit case, the Commodity Exchange Act (CEA) plainly confers on the CFTC sole regulatory authority over “designated contract markets” like Kalshi.

What is surprising is that these challengers resort to the Unlawful Internet Gaming Enforcement Act, UIGEA, to argue that Kalshi’s exchange-traded event contracts should be treated as gaming occurring on Indian lands. The UIGEA expressly excludes from its definition of prohibited gambling “any transaction conducted on or subject to the rules of a registered entity or exempt board of trade under the Commodity Exchange Act.” As we explain in our brief, this is a feature, not a bug, of UIGEA: “These exclusions emphasize that Congress … sought to ensure the preeminence of the CFTC regulatory scheme for derivatives over other federal and state regulation.” Kalshi’s event contracts are traded on a CFTC designated contract market. The exclusion applies. End of story.

Unable to argue with that plain language, the tribes instead want this case governed by the IGRA. But the IGRA regulates gambling only on Indian lands. It says nothing about the internet. Building on the strong foundation laid by Kalshi’s brief, our amicus brief makes clear that “Congress legislated in two distinct areas. In one, Congress created a structure to bring derivatives markets under one federal umbrella. In the other, it created a layered approach under which the IGRA grants tribes power to control gambling on ‘Indian lands’ and the UIGEA addresses enforcement and jurisdictional problems arising from the interstate nature of internet gambling.” In other words, these statutes operate in different lanes: the IGRA governs on-reservation gambling, the UIGEA governs interstate internet gambling, and the CEA governs federally regulated derivatives on prediction markets. The regimes governing gambling (IGRA and UIGEA) and derivatives trading (CEA) are cleaved from one another by law; the tribes cannot pick and choose which pieces of each law to use whenever it suits their fancy. Our legal regime here is not a buffet.

The battle over prediction markets isn’t ending anytime soon. But the legal principles at stake are clear and, so long as rent-seeking challengers continue inventing self-serving loopholes to avoid those principles, we’ll keep showing up to ensure courts apply them as Congress intended. The Ninth Circuit should affirm the district court and confirm that the CFTC exclusively regulates prediction markets, and no state or tribal gaming authority legal argument can change that.

The full brief is available here.