USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 1 of 79
`
`ORAL ARGUMENT REQUESTED
`No. 24-5205
`United States Court of Appeals
`For the District of Columbia Circuit
`
`KALSHIEX LLC,
`Appellee,
`v.
`U.S. COMMODITY FUTURES TRADING COMMISSION,
`Appellant.
`
`On Appeal from the U.S. District Court
`for the District of Columbia
`Case No. 1:23-cv-03257-JMC (Hon. Jia M. Cobb)
`APPELLANT’S BRIEF
`
`Robert A. Schwartz
`General Counsel
`Anne W. Stukes
`Deputy General Counsel
`Raagnee Beri
`Margaret P. Aisenbrey
`Senior Assistant General Counsels
`Conor B. Daly
`Counsel
`U.S. COMMODITY FUTURES
`TRADING COMMISSION
`1155 21st Street, N.W.
`Washington, D.C. 20581-0001
`Phone: (202) 418-5986
`Email: maisenbrey@cftc.gov
`
`
`October 16, 2024
`
`
`
`
`
`
`
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 2 of 79
`
`CERTIFICATION AS TO PARTIES, RULINGS, AND RELATED CASES
`
`Pursuant to D.C. Circuit Rule 28(a)(1), Appellant U.S. Commodity Futures
`
`Trading Commission states as follows:
`
`(A) Parties and Amici
`
`The parties in this case are KalshiEx LLC and the U.S. Commodity Futures
`
`Trading Commission.
`
`No entities have yet indicated an intention to submit a brief as amicus curiae
`
`in this Court.
`
`Before the district court, the following submitted briefs as amicus curiae:
`
`Aristotle International, Inc., Better Markets, Inc., Jeremy D. Weinstein, Joseph A.
`
`Grundfest, and Paradigm Operations LP.
`
`(B) Rulings under Review
`
`The U.S. Commodity Futures Trading Commission seeks review of the
`
`district court’s order issued September 6, 2024, and memorandum opinion issued
`
`September 12, 2024, in KalshiEx LLC v. CFTC, No. 23-cv-03257 (D.D.C.). The
`
`September 6, 2024 order can be found in the Joint Appendix at APP. 92 and the
`
`memorandum opinion at APP. 93.
`
`(C) Related Cases
`
`There are no cases related to this appeal.
`
`
`
`
`
`i
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 3 of 79
`
`
`
`TABLE OF CONTENTS
`
`CERTIFICATION AS TO PARTIES, RULINGS, AND RELATED CASES ............ i
`
`GLOSSARY ............................................................................................................ xii
`
`INTRODUCTION ..................................................................................................... 1
`
`STATEMENT OF JURISDICTION .......................................................................... 3
`
`STATEMENT OF THE ISSUES ............................................................................... 4
`
`STATUTORY AND REGULATORY BACKGROUND ........................................... 4
`A. Brief Introduction to the CFTC, the Commodity Exchange Act, and
`Derivatives ....................................................................................................... 4
`B. The Public Interest in Regulated Derivatives Markets: Hedging and Price
`Basing .............................................................................................................. 7
`C. The CEA’s “Special Rule” for Certain Event Contracts .................................. 9
`D. Prior Application of the “Special Rule” to Political Event Contracts ........... 11
`
`
`
`PROCEDURAL BACKGROUND .......................................................................... 12
`
`A. Proceedings before the Commission ............................................................. 12
`B. Proceedings in the District Court................................................................... 20
`
`
`
`STANDARD OF REVIEW ..................................................................................... 23
`
`SUMMARY OF THE ARGUMENT ....................................................................... 24
`
`ARGUMENT ........................................................................................................... 28
`A. “Involve” has broad meaning and interacts with more than
`the instrument’s underlying event ................................................................. 28
`
`
`
`ii
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 4 of 79
`
`1. The plain meaning of the statutory text is that the Special Rule
`applies when any aspect of the agreement, contract, transaction, or swap
`involves an enumerated activity ............................................................... 28
`2. The district court erroneously rejected the statutory text based on
`the “consistent usage” canon .................................................................... 31
`3. “Transactions” should be construed to mean transactions. ...................... 34
`a. The plain meaning of transactions supports the Commission's
`reading ................................................................................................. 34
`b. The reading of the word “listed” in Section 5c(c)(5)(C) and
`“transactions involving” elsewhere in the CEA does not support
`reading “transaction” as the contract ................................................... 37
`B. Gaming includes wagering on contests ......................................................... 38
`1. The ordinary meaning of gaming does not require a game ...................... 39
`2. The legislative history supports the Commission’s interpretation .......... 42
`3. The Commission did not adopt a wide-ranging definition of gaming, nor
`was it required to for purposes of this informal adjudication .................. 43
`4. The structure of the statute and the legislative history support that
`gaming is broader than “games” .............................................................. 46
`5. The gaming definition does not turn on economic consequences or state
`law exceptions for bona fide transactions ................................................ 48
`C. The Contracts are properly understood to be “unlawful
`under…State law.” ......................................................................................... 51
`1. The Commission did not read “unlawful under any state law” to
`include state laws that would operate to outlaw all event contracts ........ 51
`2. The text of the “unlawful” category is broad and reaches laws that
`are not preempted by the CEA ................................................................. 52
`3. The Commission focused on state interests that were separate from
`trading in derivatives markets .................................................................. 54
`4. The statutory context and structure support the Commission’s
`reading of the “unlawful” category .......................................................... 55
`
`
`CONCLUSION ........................................................................................................ 57
`
`
`
`
`
`
`iii
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 5 of 79
`
`TABLE OF AUTHORITIES
`
`Cases
`Ali v. Federal Bureau of Prisons,
` 552 U.S. 214 (2008) .............................................................................................. 53
`All Party Parliamentary Group on Extraordinary Rendition v. DOD
` 754 F.3d 1047 (D.C. Cir. 2014) ............................................................................ 40
`
`Building Owners & Managers Association International v. FCC,
` 254 F.3d 89 (D.C. Cir. 2001)................................................................................. 46
`
`Bostock v. Clayton County,
` 590 U.S. 644 (2000) .............................................................................................. 48
`
`Clark v. Martinez,
` 543 U.S. 371 (2005) .................................................................................. 32, 33, 34
`
`CFTC v. McAfee, No. 21-cv-1919 (JGK),
` 2022 WL 3969757 (S.D.N.Y. July 14, 2022) ......................................................... 6
`
`CFTC v. Xie, No. 23-cv-01947,
` 2023 WL 8532325 (N.D. Ill. Sept. 26, 2023) ......................................................... 6
`Confederated Tribes of Grand Ronde Community of Oregon v. Jewell,
` 830 F.3d 552 (D.C. Cir. 2016)............................................................................... 23
`Connecticut National Bank v. Germain,
` 503 U.S. 249 (1992) .............................................................................................. 28
`Consumer Electricians Association v. FCC,
` 347 F.3d 291 (D.C. Cir. 2003)............................................................................... 47
`Dubin v. United States,
` 599 U.S. 110 (2023) .............................................................................................. 45
`
`Fink v. Time Warner Cable,
` 810 F. Supp. 2d 633 (S.D.N.Y. 2011) ................................................................... 44
`
`
`
`iv
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 6 of 79
`
`Fox v. Clinton,
` 684 F.3d 67 (D.C. Cir. 2012)................................................................................. 23
`
`Holland v. National Mining Association,
` 309 F.3d 808 (D.C. Cir. 2002)............................................................................... 24
`
`Kawashima v. Holder,
` 565 U.S. 478 (2012) .............................................................................................. 33
`
`Leist v. Simplot,
` 638 F.2d 283 (2d Cir. 1980) .................................................................................. 52
`
`Loper Bright Enterprises v. Raimondo,
` 144 S. Ct. 2244 (2024) .............................................................................. 24, 28, 49
`Loving v. IRS,
` 742 F.3d 1013 (D.C. Cir. 2014) ............................................................................ 56
`Michigan v. Bay Mills Indian Community,
` 572 U.S. 782 (2014) .............................................................................................. 41
`National Association of Manufacturers v. DOD,
` 583 U.S. 109 (2018) .............................................................................................. 28
`National Cable & Telecommunications Association v. FCC,
` 567 F.3d 659 (D.C. Cir. 2009)............................................................................... 45
`
`New York v. FERC,
` 535 U.S. 1 (2002) .................................................................................................. 47
`
`Oncale v. Sundowner Offshore Services, Inc.,
` 523 U.S. 75 (1998) ................................................................................................ 47
`
`Pinson v. DOJ,
` 964 F.3d 65 (D.C. Cir. 2020)................................................................................. 35
`
`Pulsifer v. United States,
` 601 U.S. 124 (2024) .............................................................................................. 32
`
`Pfizer, Inc. v. Government of India,
` 434 U.S. 308 (1978) .............................................................................................. 40
`
`
`
`v
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 7 of 79
`
`RadLAX Gateway Hotel, LLC v. Amalgamated Bank,
` 566 U.S. 639 (2012) .............................................................................................. 45
`
`SEC v. Chenery Corp.,
` 332 U.S. 194 (1947) .............................................................................................. 44
`
`* Skidmore v. Swift & Co.,
` 323 U.S. 134 (1944) ........................................................................................ 24, 49
`
`Southwest Airlines Co. v. Saxon,
` 596 U.S. 450 (2022) .............................................................................................. 29
`
`Stoiber v. SEC,
` 161 F.3d 745 (D.C. Cir. 1998)............................................................................... 24
`Strothers v. City of Laurel,
` 895 F.3d 317 (4th Cir. 2018) ................................................................................. 44
`* Taniguchi v. Kan Pacific Saipan, Ltd.,
` 566 U.S. 560 (2012) ........................................................................................ 29, 35
`United States v. Alexander,
` 331 F.3d 116 (D.C. Cir. 2003) ............................................................................... 29
`United States v. King,
` 325 F.3d 110 (2d Cir. 2003) ............................................................................ 29, 33
`
`United States v. McKenney,
` 450 F.3d 39 (1st Cir. 2006) ................................................................................... 29
`
`United States v. Simpkins,
` 826 F.2d 94 (D.C. Cir. 1987)................................................................................. 45
`
`United States v. Williams,
` 931 F.3d 570 (7th Cir. 2019) ................................................................................. 29
`
`United States v. Woods,
` 571 U.S. 31 (2013) ................................................................................................ 35
`
`United States ex rel. Polansky v. Executive Health Resources, Inc.,
` 599 U.S. 419 (2023) .............................................................................................. 34
`
`
`
`vi
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 8 of 79
`
`U.S. Code
`
`Title 5
` Section 706(2)(A) ................................................................................................. 23
`
`Title 7
` Section 1a(15), CEA Section 1a(15) ....................................................................... 5
` Section 1a(19), CEA Section 1a(19) ..................................................................... 10
` Section 1a(47), CEA Section 1a(47 ...................................................................... 12
` Section 2(a)(1), CEA Section 2(a)(1) ................................................................... 52
` Section 2(a)(1)(A), CEA Section 2(a)(1)(A) ........................................................ 37
` Section 2(a)(1)(C)(i)(I), CEA Section 2(a)(1)(C)(i)(I) ......................................... 30
` Section 2(a)(1)(C)(i)(II), CEA Section 2(a)(1)(C)(i)(II) ...................................... 38
` Section 2(a)(1)(C)(ii), CEA Section 2(a)(1)(C)(ii) ............................................... 38
` Section 2(a)(1)(C)(iv), CEA Section 2(a)(1)(C)(iv) ............................................. 30
` Section 2(a)(1)(D)(i), CEA Section 2(a)(1)(D)(i) ................................................. 37
` Section 2(c)(2)(B)(iii), CEA Section 2(c)(2)(B)(iii) ............................................ 35
` Section 2(e), CEA Section 2(e) ............................................................................... 6
` Section 2(h)(8), CEA Section 2(h)(8) ................................................................... 38
` Section 4c(b), CEA Section 4c(b) ......................................................................... 56
` Section 5, CEA Section 3 ........................................................................................ 7
` Section 5(a), CEA Section 3(a) ............................................................................. 36
` Section 6, CEA Section 4 ........................................................................................ 6
` Section 6a, CEA Section 4a .................................................................................. 36
` Section 6a(a)(4)(A), CEA Section 4a(a)(4)(A) ..................................................... 30
` Section 6b, CEA Section 4b .................................................................................. 36
` Section 6c(b), CEA Section 4c(b) ..................................................................... 6, 37
` Section 6c(c), CEA Section 4c(c) ......................................................................... 38
` Section 6c(d)(2)(A)(i), CEA Section 4c(d)(2)(A)(i) ............................................. 30
` Section 6g, CEA Section 4g .................................................................................. 36
` Section 7a-2(c), CEA Section 5c(c) .................................................................. 8, 56
` Section 7a-2(c)(1), CEA Section 5c(c)(1) ............................................................... 9
` Section 7a-2(c)(4), CEA Section 5c(c)(4) ............................................................. 10
` Section 7a-2(c)(5), CEA Section 5c(c)(5) ......................................................... 9, 56
` * Section7a-2(c)(5)(C), CEA Section 5c(c)(5)(C) ................................... 1, 9, 11, 30
` Section 7a-2(c)(5)(C)(i), CEA Section 5c(c)(5)(C)(i) ..................10, 28, 29, 33, 54
`
`
`
`vii
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 9 of 79
`
` Section 7a-2(c)(5)(C)(i)(V), CEA Section 5c(c)(5)(C)(i)(V) ............................... 30
` Section 7a-2(c)(5)(C)(ii), CEA Section 5c(c)(5)(C)(ii) .................................. 11, 54
` Section 7(d), CEA Section 5d ................................................................................. 7
` Section 7(d)(3), CEA Section 5(d)(3) ..................................................................... 7
` Section 7(d)(4), CEA Section 5(d)(4) ..................................................................... 7
` Section 7(7) (repealed) .......................................................................................... 55
` Section 9, CEA Section 6(c) ................................................................................... 6
` Section 20(e), CEA Section 16(e) ......................................................................... 30
` Section 23(b)(1), CEA Section 19(b)(1) ............................................................... 37
` Section 24a(e)(2)(E), CEA Section 21(e)(2)(E) ................................................... 36
` Section 25(a)(1)(D)(ii), CEA Section 22(a)(1)(D)(ii) .......................................... 30
`Title 28
` Section 1291 ............................................................................................................ 4
` Section 1331 ............................................................................................................ 3
`
`Other Authorities
`
`17 C.F.R. § 33.3 ......................................................................................................... 6
`
`17 C.F.R. § 40.2 ................................................................................................... 9, 12
`
`17 C.F.R. § 40.3 ....................................................................................................... 10
`
`17 C.F.R. § 40.11, Regulation 40.11 .................................................................. 11, 14
`
`17 C.F.R. § 40.11(a), Regulation 40.11(a) ............................................................... 14
`
`17 C.F.R. § 40.11(a)(1), Regulation 40.11(a)(1) ...................................................... 20
`
`17 C.F.R. § 40.11(c)(1), Regulation 40.11(c)(1) ...................................................... 14
`Contract Market Designation, 40 Fed. Reg. 25849 (June 19, 1975) ....................... 8
`Event Contracts, 89 Fed. Reg. 48,975 (proposed May 10, 2024),
` https://www.cftc.gov/media/10706/votingcopy051024_
` EventContracts/download ..................................................................................... 45
`S. REP. NO. 93-1194 (1974),
` as reprinted in 1974 U.S.C.C.A.N. 3996, 3997 ................................................ 8, 55
`
`
`
`viii
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 10 of 79
`
`156 CONG. REC. S5906-07, 2010 WL 2788026, at *S5906-07
`(daily ed. July 15, 2010) ..................................................................11, 40, 42, 47, 48
`Commodity Futures Modernization Act of 2000,
` Pub. L. No. 106–554, 114 Stat. 2763 (2000) .................................................... 9, 56
`
`Dodd-Frank Wall Street Reform and Consumer Protection Act,
` Pub. L. No. 111-203, 124 Stat. 1376 (2010) ........................................................... 9
`2A C. SINGER, SUTHERLAND ON STATUTORY CONSTRUCTION
` § 47.17 (7th ed. 2023) ........................................................................................... 56
`IOWA CODE § 725.7 (2024) ....................................................................................... 46
`
`NEV. ADMIN. CODE, GAMING REG. § 22.1205 ......................................................... 41
`
`NEV. REV. STAT. § 293.830 (2023) ........................................................................... 54
`
`Wis. Stat. Ann. § 945.01 (West 2024) ...................................................................... 49
`
`UK Gambling Commission, License Conditions and Code of Practice
` (effective Aug. 30, 2024), https://www.gamblingcommission.gov.uk/
` licensees-andbusinesses/lccp/print ........................................................................ 12
`CFTC, Glossary: A Guide to the Language of the Futures Industry,
` https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/
` CFTCGlossary/index.htm (last visited October 14, 2024) ................................. 5, 8
`CFTC, Order Prohibiting the Listing or Trading of Political Event Contracts
` (Apr. 2, 2012), https://www.cftc.gov/sites/default/files/stellent/groups/public/
` @rulesandproducts/documents/ifdocs/nadexorder040212.pdf ................ 11, 12, 50
`Kalshi, Elections, https://kalshi.com/events/elections
` (last visited Oct. 14, 2024) ...................................................................................... 3
`Kalshi, Press, https://kalshi.com/blog/press (last visited Oct. 14, 2024) ................ 13
`2024 US Presidential Election, MGM, https://sports.on.betmgm.ca/en/
` sports/events/2024-us-presidential-election-9867644
` (last visited Oct. 14, 2024) .................................................................................... 42
`Anna Lamche, Election betting scandal: Met Police ends its investigation,
` BBC NEWS (Aug. 23, 2024),
` https://www.bbc.com/news/articles/c4gd7qxwvjzo.............................................. 49
`
`
`
`ix
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 11 of 79
`
`Dan Mangan, Kalshi expands Trump, Harris election bet options,
` adds Senate races; CFTC objects, CNBC (Oct. 9, 2024),
` https://www.cnbc.com/2024/10/09/kalshi-expands-election-betting-options-
` cftc-complains.html ................................................................................................. 3
`Katherine Sayre, West Virginia Approves, Then Disapproves,
` Betting on Elections, WALL ST. J. (Apr. 8, 2020), https://www.wsj.com/
` articles/west-virginia-approves-then-disapproves-betting-on-elections-
` 11586384497 ......................................................................................................... 12
`Sean Tomlinson, Donald Trump 2024 Odds to Win the Next U.S. Presidential
` Election: Trump Inching Away as Favorite, SPORTSBOOK REVIEW
` (Oct. 10, 2024), https://www.sportsbookreview.com/picks/
` more-sports/donald-trump-presidential-election-odds-politics/ ........................... 42
`Tarek Mansour, It's official: You can now trade on the U.S. Presidential Election,
`KALSHI, https://kalshi.com/blog/article/official-kalshi-makes-history-with-100-
`legal-election-trading (last visited Oct. 15, 2024) .................................................... 3
`Tyler Cheese, Ontario’s online gaming market launches, but some insiders
` and experts have concerns, CBC NEWS (Apr. 4, 2022),
` https://www.cbc.ca/news/canada/toronto/ontario-igaming-online-gambling-
` launch-1.6404314 .................................................................................................. 49
`Letter from Andrea Corcoran, Dir., Div. of Trading and Mkts,
` to Prof. George Neumann, Professor of Econ., Univ. of Iowa
` (June 18, 1993) https://www.cftc.gov/sites/default/files/files/foia/
` repfoia/foirf0503b004.pdf ....................................................................................... 6
`Letter from Vincent McGonagle, Dir., Div. of Mkt. Oversight,
` to Neil Quigley, Deputy Vice-Chancellor, Rsch.,Victoria Univ. of
` Wellington (Oct. 29, 2014), https://www.cftc.gov/csl/14-130/download ............... 6
`
`Contract, BLACK’S LAW DICTIONARY (12th ed. 2024) ............................................ 35
`
`Contest, OXFORD ENGLISH DICTIONARY,
` https://www.oed.com/dictionary/contest_2?tab=meaning_
` and_use#8440744.................................................................................................. 17
`Derivative, BLACK’S LAW DICTIONARY (12th ed. 2024) ........................................... 5
`
`Gaming, BLACK’S LAW DICTIONARY, (12th ed. 2024) ........................................... 39
`
`
`
`x
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 12 of 79
`
`Gaming, DICTIONARY.COM,
` https://www.dictionary.com/browse/ (last visited Oct. 14, 2024) ........................ 39
`Gaming, MERRIAM-WEBSTER.COM,
` http://www.merriamwebster.com/dictionary/gaming
` (last visited Oct. 14, 2024) .................................................................................... 39
`Gaming, OXFORD ENGLISH DICTIONARY,
` https://www.oed.com/dictionary/gaming_n?tab=meaning_and
` _use&tl=true .......................................................................................................... 39
`
`Involve, MERRIAM-WEBSTER.COM,
` https://www.merriam-webster.com/dictionary/involve .................................. 29, 53
`
`Involve, RANDOM HOUSE COLLEGE DICTIONARY 703 (Revised ed. 1979) ........ 29, 53
`
`Involve, RIVERSIDE UNIVERSITY DICTIONARY 645 (1983) ................................. 29, 53
`
`Involve, ROGET’S INTERNATIONAL THESAURUS 1040 (7th ed. 2010) ....................... 29
`
`Transaction, BLACK’S LAW DICTIONARY (12th ed. 2024) ....................................... 35
`
`Underlying, BLACK’S LAW DICTIONARY (12th ed. 2024) .......................................... 5
`
`
`*Authorities chiefly relied on are marked with an asterisk.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`xi
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 13 of 79
`
`GLOSSARY
`
`APA – Administrative Procedure Act, 5 U.S.C. § 551, et seq.
`
`CEA– Commodity Exchange Act, 7 U.S.C. § 1, et seq.
`
`CFMA – Commodity Futures Modernization Act of 2000, Pub. Law No. 106-554,
`
`114 Stat. 2763 (Dec. 21, 2000)
`
`CFTC or Commission – U.S. Commodity Futures Trading Commission
`
`DCM – Designated Contract Market
`
`IGRA – Indian Gaming Regulatory Act, 25 U.S.C. § 2701, et seq.
`
`Kalshi – KalshiEx LLC
`
`UIGEA – Unlawful Internet Gambling Enforcement Act, 31 U.S.C. § 5361, et seq.
`
`
`
`
`
`
`
`
`xii
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 14 of 79
`
`INTRODUCTION
`
`This appeal concerns an order of the U.S. Commodity Futures Trading
`
`
`
`
`Commission (“CFTC” or “Commission”) that prohibited Appellee KalshiEx LLC
`
`(“Kalshi”) from offering election gambling contracts for trading on its federally
`
`registered derivatives exchange. The Commission exercised its authority under the
`
`Commodity Exchange Act (“CEA”) to prohibit, if against the public interest,
`
`certain contracts that “involve” one of five enumerated activities, including
`
`“gaming” or “activity unlawful under any … State law.” 7 U.S.C. § 7a-2(c)(5)(C).
`
`Kalshi has never denied that trading its election-gambling contracts “involve[s],”
`
`as that term is ordinarily understood, gambling or betting on elections, or that
`
`gambling or betting on elections is unlawful under numerous states’ laws.
`
`Nonetheless, the district court erroneously held that the CEA did not authorize the
`
`Commission to prohibit a futures exchange from offering bets on the outcomes of
`
`elections.
`
`The district court erred at every turn, rejecting the plain meaning of, or
`
`simply confusing, four separate terms or phrases in the statute. First, although the
`
`statute applies where certain “agreements, contracts, or transactions involve” an
`
`enumerated activity, 7 U.S.C. § 7a-2(c)(5)(C), the court held that the statute applies
`
`much more narrowly than the words say: only where the contract’s underlying
`
`event—here, elections themselves—involves the enumerated activity. Second, the
`
`
`
`1
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 15 of 79
`
`court erroneously held that “gaming” refers only to betting on games, and not any
`
`other form of gambling, despite the total lack of authority for that proposition or
`
`any dictionary definition to support its cramped reading. On the other hand, the
`
`Commission’s broader view that gaming includes betting on elections and other
`
`contests is supported by dictionaries, state and federal statutes, and Supreme Court
`
`caselaw, all of which the court rejected.
`
`Third, the court held without basis that the Commission may not examine
`
`“transactions” that involve gaming (i.e., trading the contracts), although the statute
`
`plainly says that it may—mistakenly determining that “transaction” was another
`
`word for the “contract” or instrument, rather than its plain meaning, the act of
`
`contract formation and discharge. Finally, the holding that “unlawful activity”
`
`cannot capture election-betting contracts even though state law prohibits gambling
`
`on elections because the CEA preempts application of state law was utterly
`
`circular—once transactions are allowed on a federally regulated exchange, they are
`
`no longer illegal. But the question presented is whether election betting should be
`
`allowed on a federal exchange because it undermines important state interests.
`
`Kalshi has taken the decision as carte blanche to list dozens of election
`
`betting contracts, including bets on the outcome of the presidential election, the
`
`winner of the popular vote, margins of victory, which state will have the narrowest
`
`
`
`2
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 16 of 79
`
`margin of victory, and bets on numerous other state and federal elections.1
`
`Kalshi’s website previews other contracts, including what it refers to as “parlays”
`
`(a term used in sports betting) on various election outcomes, as “coming soon.”2
`
`One Kalshi representative stated, “this was always the plan.”3 Bets range in size
`
`from $1 for anyone up to $100 million for institutions and wealthy individuals.
`
`This would not have happened had the district court not misconstrued the statute.
`
`The judgment should be reversed, and the Commission’s order reinstated.
`
`STATEMENT OF JURISDICTION
`
`Kalshi filed this lawsuit under the Administrative Procedure Act (“APA”),
`
`challenging a final Commission order that prohibited Kalshi from offering election
`
`betting contracts, known as the Congressional Control Contracts (“Contracts”), on
`
`its derivatives exchange. The district court had jurisdiction under 28 U.S.C. §
`
`1331.
`
`On September 6, 2024, the district court granted judgment to Kalshi,
`
`followed by a memorandum opinion on September 12, 2024. The order disposed
`
`
`1 Kalshi, Elections, https://kalshi.com/events/elections (last visited Oct. 14, 2024).
`2 Tarek Mansour, It's official: You can now trade on the U.S. Presidential Election,
`KALSHI, https://kalshi.com/blog/article/official-kalshi-makes-history-with-100-
`legal-election-trading (last visited Oct. 15, 2024).
`3 Dan Mangan, Kalshi Expands Trump, Harris election bet options, adds Senate
`races; CFTC objects, CNBC (Oct. 9, 2024)
`https://www.cnbc.com/2024/10/09/kalshi-expands-election-betting-options-cftc-
`complains.html.
`
`
`
`3
`
`

`

`
`USCA Case #24-5205 Document #2080035 Filed: 10/16/2024 Page 17 of 79
`
`of all parties’ claims.
`
`The Commission appealed on September 12, 2024. This Court has
`
`jurisdiction under 28 U.S.C. § 1291 because the judgment was a final, appealable
`
`order.
`
`STATEMENT OF THE ISSUES
`
`1. Whether, as the Commission interpreted an event contract “involves” an
`enumerated activity under the Special Rule where the transactions in the
`contract involve that activity because the statute asks whether “the
`agreements, contracts, or transactions involve” an enumerated activity and
`not whether the underlying event involves that activity?
`
`2.