Appellate Court Reviews Political Betting Markets

United States appellate court judges have grilled lawyers for the Commodity Futures Trading Commission (CFTC) and betting platform Kalshi at a hearing reviewing a lower court ruling on plans to launch political betting markets.

The hearing late last week at the DC Circuit Court of Appeals heard arguments from CFTC general counsel Rob Schwartz and Kalshi's counsel, Jones Day partner Yaakov Roth. They debated whether it should allow a lower court ruling giving the go-ahead to Kalshi's election markets.

During the over two-and-a-half-hour hearing, the three-judge panel often interjected on Schwartz and Roth's arguments. They asked clarifying questions and pinned down specific definitions, saying they didn't understand some arguments. A large part of the hearing was around why the CFTC thinks betting on elections is different from other types of betting and how it interprets 'the contest of others'—a phrase the agency uses to define what gaming is.

"We're trying to figure what's in and out," one judge said in a back-and-forth with Schwartz when trying to nail down the CFTC's definition.

The panel judges also quizzed Kalshi's lawyer, Roth, on the platform's protections. They asked how the platform ensures its users aren't acting as 'a front for a foreign government.' Additionally, they drilled him on the definitions of gaming and gambling and where Kalshi's products fit.

Opening Remarks and Legal Arguments

In his opening remarks, Schwartz said a DC district court judge's decision on Sept. 12 that opened the way to allowing Kalshi to list bets related to elections was 'seriously flawed.' He emphasized the potential risks if Kalshi's platform were allowed to operate.

Related: CFTC eyeing Polymarket, betting platforms amid elections, says chair

Schwartz warned, 'If it goes into effect, [the decision] would let Kalshi immediately open its futures exchange to high-stakes betting on the Congressional elections in November.' Judge Jia Cobb had ruled that the CFTC overstepped its authority in halting Kalshi's US election betting markets, which the agency appealed.

In the case Kalshi filed in November, the CFTC claimed that gambling on US elections could disrupt markets and threaten election integrity. 'The harm to the public is going to be profound at a time, and I don't mean to be dramatic, but Americans broadly believe that our democracy is under threat,' Schwartz said at the latest hearing.

Kalshi's lawyer Roth argued that the way to reduce the risk of market manipulation was to allow Kalshi's betting platform. He stated that a 'whole suite of regulatory provisions' would apply to its product. Roth highlighted, 'Right now, this activity is happening and being reported to voters based on markets that are not regulated, that are open to foreign traders, that have no surveillance, there's no transparency.'

The judges are expected to make a quick decision on the matter as the US elections are just 45 days away, slated for Nov. 5.