USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 1 of 32
`
`
`No. 24-5205
`
`IN THE UNITED STATES COURT OF APPEALS
`FOR THE DISTRICT OF COLUMBIA CIRCUIT
`
`
`KALSHIEX LLC,
`Plaintiff-Appellee,
`
`v.
`
`COMMODITY FUTURES TRADING COMMISSION,
`Defendant-Appellant,
`
`
`On Appeal from the U.S. District Court for the District of Columbia
`No. 23-cv-03257-JMC
`
`
`OPPOSITION TO DEFENDANT-APPELLANT’S
`MOTION FOR STAY PENDING APPEAL
`
`
`
`
`Joshua B. Sterling
`MILBANK LLP
`1850 K St. N.W.
`Washington, DC 20006
`(202) 835-7537
`
`Samuel V. Lioi
`JONES DAY
`901 Lakeside Avenue
`Cleveland, Ohio 44114-1190
`(216) 586-3939
`
`
`
`Yaakov M. Roth
`John Henry Thompson
`JONES DAY
`51 Louisiana Avenue N.W.
`Washington, DC 20001
`(202) 879-3939
`yroth@jonesday.com
`
`Amanda K. Rice
`JONES DAY
`150 W. Jefferson Avenue,
`Suite 2100
`Detroit, MI 48226
`(313) 733-3939
`
`Counsel for Plaintiff-Appellee KalshiEx LLC
`
`
`
`
`
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 2 of 32
`
`TABLE OF CONTENTS
`
`
`Page
`
`
`INTRODUCTION ...................................................................................... 1
`BACKGROUND ......................................................................................... 4
`A. Event Contracts Are Established Tools
`for
`Hedging Risks and Aggregating Information. .............. 4
`B. Congress Allows Regulated Exchanges To List
`Event Contracts, Subject to a Narrow List of
`Exceptions. ..................................................................... 5
`C. Kalshi Proposes Congressional Control Contracts,
`But the CFTC Prohibits Them. ..................................... 6
`D. The District Court Vacates the CFTC’s Order and
`Denies a Stay Pending Appeal. ..................................... 7
`ARGUMENT .............................................................................................. 8
`THE CFTC IS NOT ENTITLED TO A STAY PENDING APPEAL. ..... 8
`I.
`A. The CFTC Is Unlikely To Succeed on the Merits. ........ 9
`1.
`These contracts do not involve unlawful
`activity. ................................................................ 10
`These contracts do not involve gaming. ............. 14
`2.
`B. The CFTC Faces No Irreparable Harm and the
`Public Interest Strongly Disfavors a Stay. ................. 19
`C. Granting a Stay Would Irreparably Harm Kalshi. .... 23
`CONCLUSION ........................................................................................ 25
`
`
`
`
`
`-i-
`
`
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 3 of 32
`
`
`INTRODUCTION
`
`KalshiEx LLC (Kalshi) is a CFTC-regulated exchange that offers
`
`event contracts—financial products that allow traders to hedge risks by
`
`buying contracts that pay out if a contingent event occurs. In June 2023,
`
`Kalshi sought to list event contracts contingent on which party controls
`
`the Senate and the House after the November 2024 election. Similar
`
`products are already available on unregulated exchanges, but Kalshi
`
`seeks to list these instruments in a regulated environment. The CFTC,
`
`however, issued an order prohibiting Kalshi from listing them.
`
`Kalshi challenged that order. The Commodity Exchange Act (CEA)
`
`allows the CFTC to review (and potentially ban) only event contracts that
`
`“involve” “activity that is unlawful under any Federal or State law,”
`
`“terrorism,” “assassination,” “war,” “gaming,” or “other similar activity”
`
`designated by regulation. 7 U.S.C. § 7a-2(c)(5)(C)(i). “Elections” are not
`
`on that list. And contrary to the CFTC’s reasoning, the contracts here
`
`involve neither “unlawful activity” (elections are not illegal) nor “gaming”
`
`(elections are not games). After full merits briefing and oral argument,
`
`the District Court (Cobb, J.) agreed with Kalshi and vacated the CFTC’s
`
`order in a thorough and thoughtful 27-page opinion. ECF 51 (Op.).
`
`1
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 4 of 32
`
`
`In a transparent bid to run out the clock, the CFTC now asks this
`
`Court to keep its unlawful order in effect pending appeal, rendering these
`
`time-limited contracts worthless. The Court should deny that request,
`
`as the District Court did below. In denying a stay after a hearing, Judge
`
`Cobb found that the critical factors—likelihood of success on the merits
`
`and irreparable harm—“strongly weigh” against relief. ECF 54 (Tr.)
`
`27:21. This Court should reach the same result for the same reasons.
`
`On the merits, the Commission has not shown a likelihood that this
`
`Court will reverse the District Court’s judgment. Election contracts do
`
`not “involve … unlawful activity,” and adopting the CFTC’s contrary
`
`position would upend the statute’s structure (and render the other
`
`enumerated activities meaningless) by empowering the agency to ban
`
`any event contract. Nor do Kalshi’s contracts “involve … gaming.” This
`
`category requires a predicate “game,” and elections are anything but.
`
`And once again, the Commission’s contrary interpretation sweeps every
`
`event contract into a single exception. The CFTC’s indefensible reading
`
`is no more likely to persuade this Court than it did the District Court. As
`
`Judge Cobb aptly observed, it “just cannot be right.” Op.17.
`
`2
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 5 of 32
`
`
`On the equities, the District Court found that the CFTC failed to
`
`establish that it faces any injury from the trading of these contracts. The
`
`Commission worries that these contracts would create incentives (or be
`
`used as a vehicle) to spread electoral misinformation. But other election-
`
`prediction markets (including Polymarket and PredictIt) are operating
`
`right now outside of any federal oversight, and are regularly cited by the
`
`press for their predictive data. So a stay would accomplish nothing for
`
`election integrity; its only effect would be to confine all election trading
`
`activity to unregulated exchanges. That would harm the public interest.
`
`It would also harm Kalshi—a heavily regulated exchange that has made
`
`an enormous investment in these time-limited markets.
`
`In short, having unlawfully blocked Kalshi’s contracts for over a
`
`year, the CFTC seeks months of additional delay to destroy their value
`
`and withhold them from the public. This Court should not play along.
`
`The CFTC had every opportunity to make its case, and it lost fair and
`
`square on the law after careful consideration below. The District Court
`
`also correctly recognized that there is no basis in the record for a stay
`
`pending appeal. This Court should deny the CFTC’s motion.
`
`3
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 6 of 32
`
`
`BACKGROUND
`A. Event Contracts Are Established Tools for Hedging
`Risks and Aggregating Information.
`
`Derivatives are tools to mitigate risk. See AR.37, 101. This case
`
`concerns “event contracts,” a form of derivative whose payoff is based on
`
`a specified event. Op.3. Businesses and individuals use event contracts
`
`to hedge against risk. Op.2-3. And the market price of event contracts
`
`can help clarify the likelihood that an event will occur. Op.3.
`
`Political events carry vast economic consequences, and thus present
`
`risks that can be hedged through these financial instruments. AR.2990-
`
`93; see also AR.1551 (former Chairman of President Obama’s Council of
`
`Economic Advisors discussing these benefits). In addition, political event
`
`markets provide real-time and accurate data that traditional polls often
`
`cannot replicate, benefiting the public at large. AR.1452-53, 1556.
`
`Markets for political event contracts are widespread. PredictIt, for
`
`example, “is a futures market for politics” that allows trading on electoral
`
`outcomes. Clarke v. CFTC, 74 F.4th 627, 633 (5th Cir. 2023). CFTC staff
`
`have permitted it to operate under a no-action letter issued in 2014. Id.
`
`at 633-44. Similar markets have long existed around the world. See, e.g.,
`
`AR.1416. And unregulated markets like Polymarket—which lack the
`
`4
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 7 of 32
`
`
`safeguards of regulated exchanges—provide analogous services today.
`
`See AR.1752, 1822. While Polymarket is technically forbidden to allow
`
`trading by U.S. persons, it has been widely reported that thousands of
`
`Americans are in fact trading on that platform today. See infra at 20.
`
`B. Congress Allows Regulated Exchanges To List Event
`Contracts, Subject to a Narrow List of Exceptions.
`
`Under the CEA, “[e]vent contracts” are regulated as “agreements,
`
`contracts, transactions, or swaps in excluded commodities.” 7 U.S.C.
`
`§ 7a-2(c)(5)(C)(i). While products like “wheat, cotton, rice, corn, [and]
`
`oats” are the most familiar commodities, the CEA defines “excluded
`
`commodities” to include events—in statutory parlance, any “occurrence,
`
`extent of an occurrence, or contingency” that is “beyond the control of the
`
`parties” and “associated with” economic consequences. Id. § 1a(9), (19).
`
`An entity must receive CFTC designation as a regulated exchange
`
`to offer event contracts or other derivatives for public trading. Id. §§ 2(e),
`
`7(a); 17 C.F.R. § 38.100. Exchanges are subject to comprehensive
`
`oversight by the CFTC and must comply with numerous regulatory
`
`requirements. Id. § 7(d); 17 C.F.R. pt. 38.
`
`Event contracts are presumptively lawful. 7 U.S.C. § 7a-2(c)(5)(B).
`
`Congress amended the CEA in 2010 to allow the CFTC to review and
`
`5
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 8 of 32
`
`
`potentially prohibit a limited class of event contracts that fall within
`
`certain narrow categories. Id. § 7a-2(c)(5)(C)(i)-(ii). Specifically, the CEA
`
`authorizes CFTC review only of contracts that “involve”: “activity that is
`
`unlawful under any Federal or State law,” “terrorism,” “assassination,”
`
`“war,” “gaming,” or “other similar activity determined … by rule or
`
`regulation, to be contrary to the public interest.” Id. § 7a-2(c)(5)(C)(i).
`
`C. Kalshi Proposes Congressional Control Contracts, But
`the CFTC Prohibits Them.
`
`Kalshi is a CFTC-regulated exchange that allows the public to buy
`
`and sell event contracts. Op.7. This case involves Congressional Control
`
`Contracts, which enable buyers to take positions on which political party
`
`will control the House or Senate on a future date. See Op.7-8. On June
`
`12, 2023, Kalshi certified that these contracts comply with applicable
`
`law. Id. But, on a 3-2 vote, the Commission chose to initiate a review of
`
`the contracts, so Kalshi duly delayed their listing. Op.8-9.
`
`On September 22, 2023, the CFTC issued an order prohibiting
`
`Kalshi from listing the contracts. AR.1-23 (Order). Over dissent, the
`
`Commission determined that the contracts were reviewable because they
`
`“involve” two enumerated activities: “gaming” and “unlawful” activity.
`
`6
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 9 of 32
`
`
`The Commission did not (and could not) determine that elections
`
`themselves constitute gaming or unlawful activity. Rather, it reasoned
`
`that an event contract “involve[s]” those activities if trading on the
`
`contract would amount to gaming or unlawful activity. See Order 5-7.
`
`The CFTC then declared that trading these contracts would amount to
`
`both, relying primarily on state statutes that define “gambling” to include
`
`wagering on the outcome of a “game, contest, or contingent event.” Order
`
`8. The CFTC proceeded to determine that the contracts are “contrary to
`
`the public interest” and so prohibited their listing. Order 13-23.
`
`D. The District Court Vacates the CFTC’s Order and
`Denies a Stay Pending Appeal.
`
`Kalshi sued to vacate the CFTC’s Order as exceeding the agency’s
`
`statutory authority. Op.12. After full merits briefing and oral argument,
`
`the District Court granted summary judgment to Kalshi. ECF 47, 51. In
`
`a careful opinion focused on the statute’s text, context, and history, Judge
`
`Cobb explained that Kalshi’s contracts involve “elections, politics,
`
`Congress, and party control” but not “illegal or unlawful activity.” Op.26.
`
`Nor do the contracts “bear any relation to any game—played for stakes
`
`or otherwise.” Id. Accordingly, the contracts are beyond the
`
`Commission’s statutory authority to prohibit. Id.
`
`7
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 10 of 32
`
`
`The CFTC repeatedly sought to stay the District Court’s ruling.
`
`After granting a temporary administrative stay to allow for briefing and
`
`a hearing, Judge Cobb denied a stay pending appeal—as well as the
`
`agency’s motions for “reconsideration” and for a further administrative
`
`stay. Tr.29:15-33:5. In so doing, Judge Cobb found that the two most
`
`important stay factors (success on the merits, and irreparable harm to
`
`the CFTC and the public) weigh “strongly” against a stay. Tr.27:25.
`
`Some 15 months after Kalshi’s original certification—and after both
`
`the CFTC and Judge Cobb acknowledged that Kalshi was free to list its
`
`contracts (Tr.33:5-34:3)—Kalshi did so. They traded for about eight
`
`hours on September 12, before this Court entered an administrative stay
`
`to consider the CFTC’s renewed stay motion on appeal.
`
`ARGUMENT
`
`I.
`
`THE CFTC IS NOT ENTITLED TO A STAY PENDING APPEAL.
`
`A stay pending appeal is an “exceptional” remedy. CREW v. FEC,
`
`904 F.3d 1014, 1019 (D.C. Cir. 2018) (per curiam). This Court considers
`
`“(1) whether the [movant] has made a strong showing that [it] is likely to
`
`succeed on the merits; (2) whether the [movant] will be irreparably
`
`injured absent a stay; (3) whether issuance of the stay will substantially
`
`8
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 11 of 32
`
`
`injure the other parties interested in the proceeding; and (4) where the
`
`public interest lies.” Nken v. Holder, 556 U.S. 418, 434 (2009). When the
`
`movant is a federal agency, the second and fourth factors merge. Mot.12.
`
`As Judge Cobb concluded after a hearing, there is nothing “in the record
`
`from which” a court “could make the finding that these factors warranted
`
`a stay.” Tr.28:4-6.
`
`A. The CFTC Is Unlikely To Succeed on the Merits.
`
`The first “critical” consideration is whether the party seeking a stay
`
`“has made a strong showing that [it] is likely to succeed on the merits.”
`
`Nken, 556 U.S. at 434; see also In re NTE Connecticut, LLC, 26 F.4th 980,
`
`987 (D.C. Cir. 2022). Failure to make that showing is “arguably fatal” to
`
`a stay request. CREW, 904 F.3d at 1019. The CFTC’s failure to do so is
`
`fatal here.
`
`The question in this case is whether the Commission acted lawfully
`
`when it banned Kalshi’s Congressional Control Contracts. That inquiry
`
`boils down to whether election event contracts “involve” either “unlawful”
`
`activity or “gaming.” 7 U.S.C. § 7a-2(c)(5)(C)(i)(I), (V). After full briefing
`
`from the parties and amici and an oral argument probing their positions,
`
`the District Court correctly held that the answer is “no.”
`
`9
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 12 of 32
`
`
`This Court is likely to reach the same conclusion. Proper statutory
`
`interpretation begins with the text—and “end[s] there if the text is clear.”
`
`Force v. Islamic Republic of Iran, 610 F. Supp. 3d 216, 222 (D.D.C. 2022).
`
`Moreover, statutory structure and context are crucial to any interpretive
`
`exercise. See, e.g., United States v. Slatten, 865 F.3d 767, 807 (D.C. Cir.
`
`2017). These principles doom the CFTC’s assertions that event contracts
`
`contingent on election results “involve” unlawful activity or “gaming.”
`
`Neither argument squares with the CEA’s text. Each transforms a
`
`narrow exception into a default rule that would allow the Commission to
`
`prohibit all event contracts. The Commission’s motion barely engages
`
`with Judge Cobb’s careful reasoning on these points. It certainly has not
`
`shown a likelihood of reversal.
`
`1. These contracts do not involve unlawful activity.
`
`The Commission may review an event contract that “involves …
`
`activity that is unlawful under any Federal or State law.” 7 U.S.C. § 7a-
`
`2(c)(5)(C)(i)(I). As the District Court held based on the statute’s text and
`
`context, an event contract “‘involves’ an enumerated activity where the
`
`underlying event constitutes or relates to that activity.” Op.19; contra
`
`Mot.13-15 (ascribing to the court a narrower, straw-man interpretation).
`
`10
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 13 of 32
`
`
`So an event contract “involves” unlawful activity if the event relates to
`
`an illegal act (e.g., a contract on whether a piece of art will be stolen).
`
`Kalshi’s “contracts involve elections (and politics, congressional control,
`
`and other related topics)”—“not illegal activities.” Op.14, 19.
`
`The District Court adopted this event-focused interpretation of the
`
`statute in part because that is the only interpretation that works for the
`
`neighboring enumerated activities—terrorism, assassination, and war.
`
`Op.21. A contract that “involves” terrorism, assassination, or war can
`
`only be one contingent on an event related to terrorism, assassination, or
`
`war. For instance, a contract on whether a landmark will be bombed
`
`“involve[s] … terrorism,” and a contract on whether Ukraine’s military
`
`will acquire certain munitions by 2025 “involve[s] … war.”
`
`The “unlawful activity” category must work the same way. See
`
`Ratzlaf v. United States, 510 U.S. 135, 143 (1994) (holding that “a single
`
`[statutory] formulation” must be read “the same way each time it is called
`
`into play”); see also Op.21. Indeed, when a single term “applies without
`
`differentiation to” a set of “categories,” construing it to perform different
`
`work as to “each category would … invent a statute,” not “interpret one.”
`
`Clark v. Martinez, 543 U.S. 371, 378 (2005). The District Court thus
`
`11
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 14 of 32
`
`
`properly refused to “invite ambiguity into a statutory framework that is
`
`otherwise clear by construing the relationship between ‘involve’ and the
`
`unlawful activity … differently” than for “the others.” Op.21-22.
`
`The Commission never bothers to grapple with this basic—and
`
`dispositive—point. All it offers is that the statute refers not to contracts
`
`alone, but also to “agreements, contracts, transactions, or swaps.” Mot.13
`
`(emphasis added). Emphasizing “transactions” does not advance the ball,
`
`however, because it remains true that the only way an event-contract
`
`“transaction” can “involve” war, assassination, or terrorism is if its
`
`underlying event relates to those activities. Accordingly, as the District
`
`Court recognized, only an “event-focused reading of the word ‘involve’
`
`makes sense in the context of this provision.” Op.19.
`
`The Commission’s reading also creates other “glaring issue[s].”
`
`Op.16. On its view, an event contract involves unlawful activity if
`
`trading the contract would violate state law. But that makes no sense,
`
`because any state law that prohibits trading in event contracts would be
`
`preempted by the Commission’s exclusive jurisdiction over derivatives
`
`markets. Op.24; 7 U.S.C. § 2(a)(1)(A); Leist v. Simplot, 638 F.2d 283, 322
`
`(2d Cir. 1980) (Friendly, J.).
`
`12
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 15 of 32
`
`
`Trying to square the circle, the Commission suggests the unlawful-
`
`activity exception applies whenever trading a contract would be illegal,
`
`but for federal preemption. Mot.18. That does not work either. At least
`
`29 States prohibit staking money on any contingent event.1 So under the
`
`Commission’s reading, all event contracts “involve” unlawful activity. By
`
`subjecting every event contract to review, the Commission’s reading
`
`would render the other enumerated activities surplusage, and “swallow
`
`the special rule’s provisions authorizing the CFTC to review only event
`
`contracts that relate to specific, enumerated topics.” Op.24. That “would
`
`also effectively undo the Congressional amendment to the CEA that
`
`eliminated the CFTC’s across-the-board review.” Id. As the District
`
`
`1 Ala. Code § 13A-12-20(4); Alaska Stat. Ann. § 11.66.280(3); Ariz. Rev.
`Stat. § 13-3301(6); Colo. Rev. Stat. Ann. § 18-10-102; Conn. Gen. Stat.
`Ann. § 53-278a; Haw. Rev. Stat. § 712-1220; Idaho Code § 18-3801; Ind.
`Code § 35-45-5-1(d); Iowa Code § 725.7(1)(b); Kan. Stat. Ann. §§ 21-
`6403(a)(1), 6404(a)(1); Me. Rev. Stat. tit. 17-A, § 952; Mich. Comp. Laws
`§ 750.301; Minn. Stat. Ann. §§ 609.75; Miss. Code Ann. § 97-33-1; Mo.
`Rev. Stat. § 572.010; Mont. Code Ann. § 23-5-112(14)(a); Neb. Rev. Stat.
`§ 28-1101(4); N.H. Rev. Stat. Ann. § 647:2; N.J. Stat. § 2C:37-1; N.M.
`Stat. Ann. §§ 30-19-1, 30-19-2(A); N.Y. Penal Law § 225.00(2); N.D. Cent.
`Code Ann. § 12.1-28-01; Okla. Stat. Ann. tit. 21, §§ 981, 982; Or. Rev.
`Stat. § 167.117(7); Tenn. Code Ann. § 39-17-501; Va. Code Ann. § 18.2-
`325(1); Wash. Rev. Code § 9.46.0237; Wis. Stat. Ann. §§ 945.01, 945.02(1);
`Wyo. Stat. Ann. § 6-7-101.
`
`13
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 16 of 32
`
`
`Court recognized, that “just cannot be right.” Op.17. The Commission’s
`
`efforts to evade this logic below were not “coherent.” Op.24 n.15. Its
`
`efforts on appeal (Mot.17-18) are no better.
`
`In sum, “[t]he only formulation of the interaction between ‘involve’
`
`and ‘unlawful activity’ that actually works … is if the contract or
`
`transaction’s underlying event relates in some way to activity that is
`
`illegal—not if the act of staking money on the contract’s underlying would
`
`be unlawful under any state law.” Op.24. Elections are not illegal, and
`
`the partisan affiliation of the Speaker of the House or President Pro
`
`Tempore of the Senate does not relate to unlawful activity. Thus, as the
`
`District Court correctly held, the CFTC exceeded its powers by subjecting
`
`Kalshi’s contracts to review under the “unlawful activity” exception.
`
`2. These contracts do not involve gaming.
`
`For similar reasons, the Congressional Control Contracts do not
`
`“involve … gaming” either. This, too, is a purely legal question reviewed
`
`de novo using traditional tools of statutory interpretation. Loper Bright
`
`Enters. v. Raimondo, 144 S. Ct. 2244, 2261-66 (2024). “After considering
`
`the text of the CEA, the statute’s structure and context, and the Parties’
`
`arguments,” the District Court said it “must agree” with Kalshi. Op.15.
`
`14
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 17 of 32
`
`
`The proper interpretation is simple: “‘gaming,’ as used in the special
`
`rule, refers to playing games or playing games for stakes.” Op.19. A
`
`contract thus involves “gaming” if it is contingent on a game or a game-
`
`related event. Op.15. For example, contracts on which team will win the
`
`Super Bowl, which horses will place at the Kentucky Derby, or which
`
`golfer will prevail at the Masters “involve … gaming,” because their
`
`events relate to activities “engaged in for diversion or amusement.”
`
`Game, MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY (11th ed. 2020).
`
`Indeed, those examples are drawn verbatim from the statute’s only
`
`legislative history, see 156 Cong. Rec. S5907 (daily ed. July 15, 2010),
`
`which thus strongly corroborates Kalshi’s interpretation (Op.25).
`
`This reading also aligns with the ordinary meaning of “gaming.”
`
`Op.15, 17, 25. As dictionaries attest, “gaming” requires a game.2 State
`
`
`2 See, e.g., Gaming, CONCISE OXFORD ENGLISH DICTIONARY (11th ed.,
`rev. 2008) (“playing at games of chance for money”); Gaming, Merriam-
`Webster.com (“playing games for stakes”); Game, NEW OXFORD AMERICAN
`DICTIONARY (3d ed. 2010) (“games of chance for money”); Gaming,
`CAMBRIDGE DICTIONARY OF AMERICAN ENGLISH (2d ed. 2008) (“industry in
`which people gamble by playing cards and other games in casinos”);
`gaming contract, CHAMBERS DICTIONARY (13th ed. 2014) (“a wager upon
`any game (eg a horse race or football match)”); Gaming, BOUVIER LAW
`DICTIONARY (2011 ed.) (“[a] contract to enter a game of skill or chance
`that one might win or lose”; parties “play a game with certain rules”).
`
`15
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 18 of 32
`
`
`and federal statutes point the same way, as they routinely use “gaming”
`
`to refer to betting on games.3 Indeed, many States distinguish broader
`
`terms like “gambling” or “wagering” from the narrower, game-focused
`
`concept of “gaming.”4 Accord Op.15.
`
`An election is not a game. It is not staged for entertainment or for
`
`sport. And, unlike the outcome of a game, the outcome of an election
`
`carries vast extrinsic and economic consequences. See Op.25.
`
`The Commission again offers an entirely different understanding of
`
`what it means for a contract to “involve” the relevant activity. Mot.14-
`
`15. Rather than ask whether a contract’s event involves “gaming,” it asks
`
`whether trading the contract amounts to “gaming.” But this argument
`
`suffers from the same flaws as the CFTC’s unlawful-activity theory. For
`
`
`3 See, e.g., 25 U.S.C. § 2703(6)-(8) (defining “gaming” classes in Indian
`Gaming Regulatory Act); Iowa Code § 725.7(1) (“illegal gaming” means
`“[p]articipat[ing] in a game for any sum”); Mass. Gen. Laws ch. 23K, § 2
`(“gaming” is “dealing, operating, carrying on, conducting, maintaining or
`exposing any game for pay”).
`4 Compare Colo. Rev. Stat. Ann. § 18-10-102 (“gambling”), with id.
`§ 44-30-103(22)
`(“gaming”); compare Miss. Code Ann. § 97-33-1
`(“wagering or betting”), with id. § 75-76-5(l) (“gaming”); compare N.M.
`Stat. Ann. § 30-19-2 (“gambling”), with id. § 60-2E-3 (“gaming”); compare
`N.Y. Penal Law § 225.00(2) (criminal “gambling”), with N.Y. Rac. Pari-
`Mut. Wag. & Breed. Law § 1301(19)-(20) (“gambling,” “gaming,” “game”).
`
`16
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 19 of 32
`
`
`one, that reading of the statute is nonsensical as applied to the war,
`
`assassination, and terrorism categories. For another, if a contract counts
`
`as “gaming” whenever trading it would qualify as gambling under state-
`
`law definitions, the exception has again swallowed the rule. After all,
`
`anyone who trades an event contract, by definition, stakes money on a
`
`contingent event—which is a standard state-law definition of gambling.
`
`Op.16. Once again, such an interpretation “just cannot be right.” Op.17.
`
`Recognizing the problem, the CFTC tries to conjure a Goldilocks
`
`exception just broad enough to reach Kalshi’s contracts, but just narrow
`
`enough not to swallow the rule. Specifically, the Commission asserts that
`
`“gaming” reaches betting on “games” plus “staking something of value on
`
`a contest of others”—but not wagers on other future events. Mot.16. But
`
`there is no reason why this contrived-for-litigation definition, with no
`
`dictionary, statutory, or other support, “should displace the plain and
`
`ordinary meaning of gaming.” Op.17. Ultimately, “[t]he CFTC cannot
`
`have it both ways: it cannot synonymize gaming with gambling, but
`
`simultaneously argue that only some gambling is gaming.” Id. This is
`
`transparent gerrymandering, not statutory interpretation.
`
`17
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 20 of 32
`
`
`The Commission tries to distract by citing news articles that refer
`
`to event contracts as “betting” or “gambling.” Mot.2 & n.2. But the media
`
`regularly refer to all sorts of legitimate financial instruments in similar
`
`terms. E.g., Michael Mackenzie, Bond Market’s Bet on a Half-Point Fed
`
`Cut This Month Is Over, BLOOMBERG (Sept. 11, 2024). As Justice Holmes
`
`observed long ago, it is “extraordinary and unlikely” that “the great
`
`market for future sales” is “to be regarded as mere wagers.” Bd. of Trade
`
`v. Christie Grain & Stock Co., 198 U.S. 236, 249 (1905).
`
`In the end, “definitions of ‘gambling’ that are untethered to the act
`
`of playing a game are much too broad” for this statute, which uses the
`
`word “gaming,” not “gambling,” in any event. Op.15. Kalshi’s contracts
`
`are not contingent on a game, so they do not fall within this exception.
`
`Congress could have listed elections as an activity that triggers
`
`public-interest review. It did not. And despite the CFTC’s interpretive
`
`cartwheels, the Congressional Control Contracts do not involve “unlawful
`
`activity” or “gaming” any more than they involve “war,” “assassination,”
`
`or “terrorism.” Nor has the CFTC even tried to promulgate a regulation
`
`deeming elections to be “similar” to the enumerated activities. Op.6 n.4.
`
`The District Court got this right, and this Court will likely affirm.
`
`18
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 21 of 32
`
`
`B. The CFTC Faces No Irreparable Harm and the Public
`Interest Strongly Disfavors a Stay.
`
`Beyond success on the merits, the Commission must demonstrate
`
`that it “will be irreparably injured absent a stay,” which in this context
`
`merges with the “public interest.” Nken, 556 U.S. at 434-35. The Court
`
`must “test” a movant’s alleged harms “for substantiality, likelihood of
`
`occurrence[,] and adequacy of proof.” Cuomo v. U.S. Nuclear Regulatory
`
`Comm’n, 772 F.2d 972, 977 (D.C. Cir. 1985). Thus, the CFTC cannot rest
`
`on “speculative and hypothetical” harms, Wisc. Gas Co. v. FERC, 758
`
`F.2d 669, 675 (D.C. Cir. 1985), or events that were “already” happening
`
`even before the lower court acted, Doe 1 v. Trump, No. 17-5267, 2017 WL
`
`6553389, at *2 (D.C. Cir. Dec. 22, 2017) (emphasis omitted).
`
`The CFTC will not be harmed by the District Court’s order pending
`
`this appeal, nor would a stay serve the public interest. Most importantly,
`
`Congress did not empower the Commission to prohibit event contracts on
`
`electoral outcomes. And “our system does not permit agencies to act
`
`unlawfully even in pursuit of desirable ends.” Ala. Ass’n of Realtors v.
`
`HHS, 594 U.S. 758, 766 (2021). “There is generally no public interest in
`
`the perpetuation of unlawful agency action.” League of Women Voters v.
`
`Newby, 838 F. 3d 1, 12 (D.C. Cir. 2016).
`
`19
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 22 of 32
`
`
`Ignoring that point, the Commission asserts that Kalshi’s contracts
`
`will imperil American democracy by incentivizing misinformation or by
`
`using the markets themselves to distort electoral perceptions. Mot.19.
`
`But, as Judge Cobb found, election-prediction markets are “happening in
`
`an unregulated way” already. Tr.27:1-4. Indeed, PredictIt has operated
`
`for a decade, with reported volumes of hundreds of millions of dollars.5
`
`Polymarket is trading nearly a billion dollars in U.S. election-prediction
`
`markets right now—and is widely known to be used by U.S. traders, even
`
`if such uses are technically forbidden (Mot.10). See Lydia Beyoud &
`
`Sridhar Natarajan, US Traders Flock to an Election-Betting Site They’re
`
`Banned From, BLOOMBERG (Aug. 1, 2024); see also www.polymarket.com.
`
`The longstanding, continuing operation of other election-prediction
`
`markets means a stay would do nothing to advance the Commission’s
`
`goals. Traders will continue to stake money on U.S. elections, and voters
`
`will continue to be exposed to predictive market data. The only difference
`
`is whether all of this will happen solely on unregulated exchanges, or
`
`
`5 The CFTC responds by pointing to Kalshi’s higher position limits,
`but the limit it cites is only for large-scale institutional-type investors
`who have demonstrated a hedging need; the default position limit for an
`individual trader is $125,000. AR.32-33.
`
`20
`
`

`

`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 23 of 32
`
`
`whether consumers will also have access to a transparent market that is
`
`subject to comprehensive regulation and CFTC oversight (including
`
`access to the identity of all traders), and that is limited to participation
`
`by U.S. persons, as Kalshi’s exchange is (contra Mot.21). The CFTC tries
`

This document is available on Docket Alarm but you must sign up to view it.


Or .

Accessing this document will incur an additional charge of $.

After purchase, you can access this document again without charge.

Accept $ Charge

This document could not be displayed.

We could not find this document within its docket. Please go back to the docket page and check the link. If that does not work, go back to the docket and refresh it to pull the newest information.

Your account does not support viewing this document.

You need a Paid Account to view this document. Click here to change your account type.

Your account does not support viewing this document.

Set your membership status to view this document.

With a Docket Alarm membership, you'll get a whole lot more, including:

  • Up-to-date information for this case.
  • Email alerts whenever there is an update.
  • Full text search for other cases.
  • Get email alerts whenever a new case matches your search.

Become a Member

One Moment Please

The filing “” is large (MB) and is being downloaded.

Please refresh this page in a few minutes to see if the filing has been downloaded. The filing will also be emailed to you when the download completes.

Your document is on its way!

If you do not receive the document in five minutes, contact support at support@docketalarm.com.

Sealed Document

We are unable to display this document, it may be under a court ordered seal.

If you have proper credentials to access the file, you may proceed directly to the court's system using your government issued username and password.


Access Government Site

We are redirecting you
to a mobile optimized page.