(Photo by Mario Hommes/DeFodi Images via Getty Images) DeFodi Images via Getty Images By its own admission, Kalshi is offering a sports betting product – across all 50 states. Kalshi has repeatedly advertised its sports-event contracts on social media as “The First Nationwide Legal Sports Betting Platform”; “Betting on Kalshi, the first app for legal sports betting in all 50 states”; and “Sports Betting Legal in all 50 States on Kalshi." (see here and here). Not only does the federal Wire Act criminalize that activity – as it constitutes the interstate transmission of bets or wagers through interstate commerce – but the CFTC’s own regulation (Rule 40.11(a)(1)) prohibits the offering of event contracts involving or relating to “gaming.” Rule 40.11(a)(1) imposes a blanket ban on all event contracts involving “gaming,” “war,” “terrorism,” “assassination,” and “activity that is unlawful under State or Federal Law.” The inclusion of the italicized word “Prohibition” at the outset of the Rule is a dead giveaway. As explained by acting CFTC Chair Caroline D. Pham: In promulgating Rule 40.11(a)(1) pursuant to Section 5c(c)(5)(C), the Commission determined that an event contract that “involves, relates to, or references” terrorism, assassination, war, gaming, or illegal activity is prohibited because it is contrary to the public interest. There is no further public interest test in Rule 40.11(a)(1). MORE FOR YOU Spotlighting Venture’s Rising Stars: The 2025 Forbes Midas Brink List Google’s Gmail Upgrade—Why You Need This New Email Address Today’s NYT Mini Crossword Clues And Answers For Tuesday, May 27 Incoming CFTC Chairman Brian Quintenz has likewise acknowledged that Rule 40.11(a)(1) imposes a “blanket prohibition” on any event contract that involves or relates to “gaming.” In a May 24, 2021 public appearance before the Federalist Society, then-Commissioner Quintenz was asked whether the CFTC “is required to prevent the listing of a contract that’s considered gambling.” Quintenz’s response: “the regulation we wrote requires us to.” Several months earlier, Commissioner Quintenz wrote that if an event contract “is found to be an enumerated event contract, then it is subject to the per se prohibition in the regulation.” Or, as he bluntly put it, “under Regulation 40.11, that means game over.” Kalshi has already conceded that its sports-event contracts involve ‘gaming.’ In a court document filed last year in its lawsuit with the CFTC, Kalshi asserted that “the only relevant legislative history . . . confirms that contracts on ‘sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament’ were precisely what Congress had in mind as ‘gaming’ contracts.’” The ‘gaming’ category, Kalshi advised the court, “reaches contracts contingent on games – for example, . . . whether a certain team will win the Super Bowl. It thus functions as a check on attempts to launder . . . sports gambling through the derivatives markets.” (Notably, Kalshi also asserted that “Congress did not want sports betting conducted on derivatives markets,” adding that “contracts relating to games . . . “are unlikely to serve any ‘commercial or hedging interest’” and “have no inherent economic significance” — a position which is fundamentally and stunningly at odds with its current litigation posture). At the January 17, 2025 oral argument before the D.C. Circuit – which occurred just six days before it filed its self-certification for sports contracts with the CFTC – Kalshi reaffirmed that “the legislative history is exclusively about sports when it talks about ‘gaming,’” declaring that “Congress was particularly concerned at the time it enacted this statute about sports betting and that was probably what they were getting at with the word ‘gaming.’” (49:50-50:08). Tying Rule 40.11(a)(1) to the Preliminary Injunction Factors If Rule 40.11(a) categorically bans ‘gaming’ contracts and Kalshi’s sports-event contracts fall within that prohibited category, then why isn’t it ‘game over’ for Kalshi in the federal courts? Kalshi has attempted to evade this inquiry by confining its federal court lawsuits against Maryland, Nevada, and New Jersey to a single constitutional question – i.e., whether state sports betting laws are “preempted” by the Commodity Exchange Act’s grant of exclusive jurisdiction to the CFTC over all derivatives contracts traded on CFTC-designated exchanges. According to Kalshi, any inquiry over Rule 40.11(a)(1)’s applicability falls outside the scope of the constitutional question presented, and, in any event, “reaffirms” the CFTC’s exclusive jurisdiction over Kalshi’s contracts because only the CFTC can enforce its own regulations. Contrary to Kalshi’s assertion, Rule 40.11(a)(1) is relevant for several reasons. First, Kalshi itself has injected Rule 40.11(a)(1) into the lawsuits by alleging that its sports-event contracts are “lawful under federal law.” Further, Kalshi’s Head of Markets, Xavier Sottile, submitted a declaration in support of each one of Kalshi’s motions for preliminary injunction attesting that Kalshi “assiduously complied with federal regulations with regard to all of our contracts.” The unique procedural posture of the case also warrants a broader lens. Kalshi is asking the federal courts to grant it the extraordinary remedy of a preliminary injunction – which is essentially an early victory before there is even a trial. To obtain a preliminary injunction, Kalshi must demonstrate the following: (1) a likelihood of success on the merits; (2) a likelihood of suffering irreparable harm in the absence of preliminary relief; (3) that the balance of equities weighs in its favor; and (4) that injunctive relief is in the “public interest.” In assessing these factors, the reviewing court can consider a broader range of documents and information, including matters outside the four corners of the complaint. The Fourth Circuit (which covers the Maryland federal courts) has stated that a court ruling on a preliminary injunction motion “may look to, and indeed in appropriate circumstances rely on, hearsay or other inadmissible evidence when deciding whether a preliminary injunction is warranted.” It does not require much ingenuity to tie Rule 40.11(a)(1) to the various preliminary injunction factors. It’s pretty straightforward. The one that immediately jumps out is the “public interest” prong which is so central to the granting of preliminary injunctive relief. Failure to Enforce Rule 40.11(a)(1) is Contrary to the Public Interest Kalshi may have raised the specter of Rule 40(a)(1) – yet again – in its motion papers filed in the Maryland case. At page 19 of its motion for preliminary injunction, Kalshi contends that the “public interest” prong of the preliminary injunction standard favors Kalshi because “the public undoubtedly has an interest in seeing its governmental institutions follow the law.” Ironically, the “governmental institutions” that Kalshi was calling out with that statement were the Maryland state agencies for not recognizing the preemptive effect of federal law. What an unforced error. If there is any government institution which “failed to follow the law,” it would be the CFTC, which failed to enforce its own regulation – Rule 40.11(a)(1). As noted above, Rule 40.11(a)(1) prohibits event contracts that involve, relate to or reference “gaming.” With Kalshi already on record as equating sports-event contracts with “gaming,” the CFTC was compelled by its own regulation to order Kalshi to discontinue the listing or trading of its sports-event contracts. After all, the CFTC has already determined – through formal rulemaking unanimously approved more than a decade ago – that event contracts involving or “relating to” gaming are automatically “contrary to the public interest” without any further public interest review. There is no discretion or wiggle room afforded to the CFTC under Rule 40.11(a)(1). It’s a per se prohibition, as acknowledged by both Commissioners Pham and Quintenz. While Kalshi (and others) have argued that Rule 40.11 gives the CFTC the discretion to apply an individualized ‘public interest’ test to proposed event contracts on a “case-by-case” basis, the plain language of the Rule squarely refutes that. To that point, Acting Chairman Pham declared in 2022 that “there is no further public interest test in Rule 40.11(a)(1) . . . . The Commission has no discretion to infer an additional case-by-case public interest test under Rule 40.11(a)(1) because the plain meaning of . . . the rule text is clear and unambiguous.” In other words, it’s “game over” (to use Quintenz’s football analogy). I would think that’s a pretty pertinent consideration on a motion for a preliminary injunction analysis, which requires consideration of the “public interest.” Here, the public interest would clearly be disserved by the CFTC’s failure to enforce Rule 40.11(a)(1). As several Maryland federal district courts have recognized, “there is a substantial public interest ‘in having governmental agencies abide by the federal laws that govern their existence and operations.’” And the “public interest” points only one way – at least until Rule 40.11(a)(1) is amended or withdrawn. Until such time, Kalshi’s sports-event contracts are barred by Rule 40.11(a)(1). So, if, as Kalshi insists in its motion, there is a strong “public interest” in ensuring that governmental institutions “follow the law,” one would expect the State of Maryland (and Judge Abelson) to take note of the CFTC’s abject failure to enforce Rule 40.11(a)(1). In doing so, the Court is not being asked to “enforce” Rule 40.11(a)(1) against the CFTC (as Kalshi argues in its reply brief). Rather, the Court is simply being asked to consider the CFTC’s failure to enforce Rule 40.11(a)(1) in the context of Kalshi’s motion for preliminary injunction, with an eye towards examining whether granting an injunction to Kalshi would serve the public interest where its sports contracts are barred both by a federal statute (the Wire Act) and by a clear and unambiguous agency rule which the CFTC refuses to enforce. That’s well within the Court’s purview on a motion for preliminary injunction. Irreparable Harm Negated by Contract Illegality Along the same lines, the illegality of sports-event contracts under both the Wire Act and Rule 40.11(a)(1) undercuts Kalshi’s claim of “irreparable harm” – another prong of the preliminary injunction inquiry. There cannot be any standing to sue – much less “irreparable harm” – if Kalshi’s contracts are not “lawful.” (Kalshi has alleged that its contracts are “lawful under federal law” and submitted a declaration attesting to its “compliance with” CFTC regulations – placing the lawfulness of its contracts under federal law squarely at issue in this litigation). Here, any irreparable harm that Kalshi may have suffered is entirely of its own making. It self-certified its sports-event contracts as being “in compliance” with CFTC regulations at a time when such contracts were barred by a specific CFTC regulation and just two weeks after Crypto.com was ordered by the CFTC to suspend the listing of its sports contracts pursuant to the same regulation. Instead of seeking preclearance from the CFTC (as it could have done), Kalshi plunged full speed ahead despite its prior acknowledgement in the CFTC case that sports-event contracts involved ‘gaming’ (or, more specifically, sports betting), have “no inherent economic significance,” are “unlikely to serve any ‘commercial or hedging interest,’” and conceding that “Congress did not want sports betting conducted on derivatives markets.” Federal courts have rejected claims of irreparable harm based on the illegality of the underlying contract, characterizing the moving party’s quandary as “a bed largely of its own making” and calling the request for injunctive relief in such circumstances “ill-suited.” False certification to the CFTC constitutes “unclean hands” Another way to weave Rule 40.11(a)(1) into the preliminary injunction proceedings is through an “unclean hands” defense. The doctrine of “unclean hands” bars equitable relief “when the party seeking relief is guilty of fraud, unconscionable conduct, or bad faith directly related to the matter at issue that injures the other party and affects the balance of equities.” It all ties back to Kalshi’s January 23rd self-certification regarding its initial listing of a sports-related event contract. On page 4 of that document, Kalshi made an affirmative representation that its proposed sports-related event contract “complies with” the CFTC Regulations. CFTC Regulation 40.11(a)(1) places a blanket prohibition on any event contract that “involves, relates to, or references” any of the following: “terrorism, “assassination,” “war,” “gaming,” or an “activity that is unlawful under any State or Federal law.” In other words, event contracts relating to “gaming” are per se prohibited under Rule 40.11(a)(1). As a frequent applicant before the CFTC (going all the way back to 2020), Kalshi should be well aware of this Rule, especially since it’s prominently displayed on the CFTC’s website and Commissioner (and now acting CFTC chair) Caroline D. Pham specifically referred to Rule 40.11 (a)(1)’s blanket prohibition in public statements about Kalshi’s prior event contracts. In a letter dated April 1, 2025, U.S. Congress member Dina Titus asked the CFTC to “consider whether Kalshi made false claims in its self-certification,” in light of Kalshi’s prior judicial statements to the effect that sports-based event contracts “would qualify as prohibited activities under the Commodity Exchange Act and applicable federal regulations.” As a remedy for the alleged “false statement,” Congresswoman Titus has asked the CFTC “to stay the trading of [Kalshi’s] sports event contracts” while it investigates the matter. States can likewise weaponize the allegedly false statements made in Kalshi’s ‘self-certification’ by arguing to the federal courts that Kalshi is not entitled to a preliminary injunction because it comes to a court of equity with “unclean hands.” Here, a state could argue that Kalshi has “unclean hands” (and therefore is ineligible for a preliminary injunction) because it misrepresented to the CFTC that its sports-related event contracts comply with CFTC Regulations, with full knowledge that CFTC Rule 40.11(a)(1) prohibits event contracts relating to “gaming” and after having previously asserted in prior judicial proceedings that the “gaming” category includes sports-based event contracts (like the ones at issue here). Further, the alleged misrepresentation concerning sports-related event contracts is directly related to the matter at issue since it involves the same subject. As you can see, the CFTC’s non-enforcement of Rule 40.11(a)(1) is far from a non-issue. It bears directly on three out of the four elements of a preliminary injunction – including a “balancing of the equities” – and should enthusiastically be invoked by states faced with such an extraordinary remedy. Two of the most compelling story lines in the entire Kalshi saga are: (1) Kalshi’s complete 180 on the legality of sports-event contracts (as compared with its prior position advanced in the CFTC litigation – I can’t recall ever seeing a litigant change its story so dramatically in such a short period of time); and (2) the CFTC’s failure to enforce its own regulation. These are winning themes that states should be hammering in their court filings. Editorial StandardsReprints & Permissions