USCA Case #24-5205 Document #2074493 Filed: 09/12/2024 Page 1 of 28
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`
`IN THE UNITED STATES COURT OF APPEALS FOR
`THE DISTRICT OF COLUMBIA CIRCUIT
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`
`
`
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`KALSHIEX LLC,
`Appellee/Plaintiff,
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`
`
`
`
`v.
`
`No.
`(Appeal from Case No. 1:23-cv-03257)
`
`COMMODITY FUTURES TRADING
`COMMISSION,
`
`
`Appellant/Defendant.
`
`
`
`
`
`EMERGENCY MOTION FOR STAY PENDING APPEAL AND
`IMMEDIATE INTERIM RELIEF
`At issue in this appeal is whether a registered U.S. futures exchange should
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`be able to offer election gambling, allowing U.S. customers, for the first time on
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`such an exchange, to place bets on the outcomes of elections right in the heart of
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`election season, in some cases wagering up to $100 million. Appellee KalshiEx
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`LLC (“LLC”), knowing that this Court’s review was imminent, has raced to launch
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`its election gambling contracts on the same day the District Court issued a
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`memorandum opinion, before Appellant the Commodity Futures Trading
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`Commission (“Commission” or “CFTC”) has had the opportunity to file this
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`motion for stay pending appeal about the serious legal issues and public interests at
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`stake.
`
`
`
`
`IN THE UNITED STATES COURT OF APPEALS FOR
`THE DISTRICT OF COLUMBIA CIRCUIT
`
`
`
`
`
`KALSHIEX LLC,
`Appellee/Plaintiff,
`
`
`
`
`
`v.
`
`No.
`(Appeal from Case No. 1:23-cv-03257)
`
`COMMODITY FUTURES TRADING
`COMMISSION,
`
`
`Appellant/Defendant.
`
`
`
`
`
`EMERGENCY MOTION FOR STAY PENDING APPEAL AND
`IMMEDIATE INTERIM RELIEF
`At issue in this appeal is whether a registered U.S. futures exchange should
`
`be able to offer election gambling, allowing U.S. customers, for the first time on
`
`such an exchange, to place bets on the outcomes of elections right in the heart of
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`election season, in some cases wagering up to $100 million. Appellee KalshiEx
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`LLC (“LLC”), knowing that this Court’s review was imminent, has raced to launch
`
`its election gambling contracts on the same day the District Court issued a
`
`memorandum opinion, before Appellant the Commodity Futures Trading
`
`Commission (“Commission” or “CFTC”) has had the opportunity to file this
`
`motion for stay pending appeal about the serious legal issues and public interests at
`
`stake.
`
`
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`USCA Case #24-5205 Document #2074493 Filed: 09/12/2024 Page 2 of 28
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`Kalshi is a registered futures exchange subject to comprehensive regulation
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`under the Commodity Exchange Act (“CEA”). It wants to offer bets on elections.
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`To market the endeavor, it touts press coverage of its new “Contracts to Bet on
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`Control of Congress,” “Political Betting,” “election betting,” “Election Gambling,”
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`and “wager[s] on elections.”1 After the District Court issued its order, Kalshi’s
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`CEO posted a Wall Street Journal article titled Are You Ready to Bet on U.S.
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`Elections?2 As of today, Kalshi’s website has begun trading election contracts on
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`which political party will control each house of Congress.
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`https://kalshi.com/elections (last visited September 12, 2024).
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`Kalshi is not a casino; it is an actor in markets regulated by the Commission
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`and governed by the CEA. The CEA’s purpose is to protect the “national public
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`interest by providing a means for managing and assuming price risks, discovering
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`prices, or disseminating pricing information through trading in liquid, fair and
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`financially secure trading facilities.” 7 U.S.C. § 5(a).
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`On September 22, 2023, the CFTC issued an order holding that Kalshi was
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`not permitted to offer election event contracts under a CEA section that empowers
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`the CFTC to prohibit contracts that “involve” “gaming” or “activity that is
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`unlawful under any … state law.” 7 U.S.C. § 7a-2(c)(5)(C). On September 6,
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`1 Press, Kalshi, https://kalshi.com/blog/press (last visited Sept. 12, 2024).
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`2
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`2024, the District Court vacated the CFTC’s order for the “reasons stated in the
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`Court’s forthcoming memorandum opinion,” [Dkt. 47], and the memorandum
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`opinion issued today, September 12, 2024 [Dkt. 51].
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`The CFTC respectfully moves for an emergency stay of the District Court’s
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`order during this Court’s consideration of the instant motion to stay pending
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`appeal. The Commission seeks an emergency stay/injunction that suspends Kalshi
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`from listing and trading the election contracts during the pendency of this motion,
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`until further order of the Court, so that this Court has time to decide whether a stay
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`pending appeal should issue.
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`Compliance with Fed. R. App. P. 8(a)(1) and Local Rule 8(a)(1)
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`Under Fed. R. App. Procedure 8(a)(1) and Local Rule 8(a)(1), the CFTC
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`orally moved the District Court for the relief requested herein. See Sept. 12, 2024
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`Hearing Tr. (transcript attached). The District Court denied the CFTC’s motion for
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`stay pending appeal during the hearing, concluding that the standards for a stay had
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`not been satisfied. See Sept. 12, 2024 Hearing Tr.
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`Compliance with Local Rule 27(e)
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`This Court’s immediate intervention is needed because Kalshi has now listed
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`the election contracts for trading, which poses a grave risk to the public interest.
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`On Thursday, September 12, 2024, on the date the District Court issued its
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`memorandum opinion, the Commission orally moved, and the District Court
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`USCA Case #24-5205 Document #2074493 Filed: 09/12/2024 Page 4 of 28
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`denied, a motion to stay pending appeal. Thus, the Commission was not in a
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`position to file this emergency motion before today. In accordance with both
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`Circuit Rule 27(e) and Circuit Rule 8, counsel has communicated telephonically
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`with opposing counsel and the Clerk’s Office.
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`INTRODUCTION
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`On September 6, 2024, the District Court vacated the Commission’s order
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`prohibiting the listing and trading of election gambling contracts on Kalshi’s U.S.
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`futures market. The District Court issued its memorandum opinion on
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`September 12, 2024. Now Kalshi has launched “Election Gambling” before the
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`CFTC can even ask this Court for a stay pending appeal. As the CFTC found in its
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`order, “allowing the public to trade on the outcome of elections threatens the public
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`interest.” [Dkt 51 at 2]. Moreover, as trading commences on Kalshi’s election
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`event contracts, even if only briefly, there is an acute risk of short-term
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`manipulation of election markets and threats to election integrity. A court order is
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`needed if such trading to be suspended during this appeal. Thus, the Commission
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`requests a short administrative stay, suspending trading on the election contracts
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`while this Court deliberates on whether a further stay is warranted.
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`4
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`USCA Case #24-5205 Document #2074493 Filed: 09/12/2024 Page 5 of 28
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`BACKGROUND
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`A. The CFTC
`The CFTC is an independent federal agency that regulates derivatives
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`markets and administers the Commodity Exchange Act (the “CEA” or “Act”). A
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`“derivative” is a financial instrument, or contract, such as a future, option, or swap,
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`whose price is directly dependent upon—that is, “derived from”—the value of
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`something else, such as an agricultural or financial commodity.3 In this case, the
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`derivatives in question are known as “event contracts,” a type of derivative
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`contract whose payoff is based on a specified “underlying” “event, occurrence, or
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`value.”4 For example, an event contract might be based on the occurrence,
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`nonoccurrence, or extent of an occurrence of a weather event such as snowfall or
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`rainfall.
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`The CEA requires that certain derivatives instruments be traded only on
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`regulated exchanges. Retail customers’ only legal avenue to trade event contracts
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`is on a contract market registered with the CFTC. See 7 U.S.C. §§ 2(e), 6, 6c(b);
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`3 CFTC, Glossary: A Guide to the Language of the Futures Industry,
`https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/CFTCGlossary/ind
`ex.htm (last visited Sept. 9, 2024).
`4 CFTC, Contracts & Products: Event Contracts,
`https://www.cftc.gov/IndustryOversight/ContractsProducts/index.htm (last visited
`September 9, 2024). The asset or other factor that gives rise to the rights and
`obligations in a derivative contract is called its “underlying.” Underlying,
`BLACK’S LAW DICTIONARY (11th ed. 2019).
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`17 C.F.R. § 33.3. Kalshi is a type of regulated exchange called a “designated
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`contract market” (“DCM”).
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`B. Event Contracts and Special Rule
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`For most derivatives contracts, a DCM can self-certify a new product and
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`trade it one business day after its submission to the CFTC, without waiting for the
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`Commission to take any action. 7 U.S.C. § 7a-2(c)(1); 17 C.F.R. § 40.2.
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`Alternatively, a DCM may voluntarily submit a new product and seek the CFTC’s
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`pre-approval, in which case the Commission will review the submission and
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`approve the product unless it violates a specific provision of the CEA or the
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`Commission’s regulations. 7 U.S.C. § 7a-2(c)(4)-(5); 17 C.F.R. § 40.3.
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`In 2010, Congress enacted the statutory provision relevant to this case, CEA
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`Section 5c(c)(5)(C), codified at 7 U.S.C. § 7a-2(c)(5)(C), known as the “Special
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`Rule” for certain event contracts. The Special Rule authorizes the Commission to
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`review and determine whether the contract should be disallowed as contrary to the
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`public interest. The Special Rule provides that the Commission “may determine”
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`that certain “agreements, contracts, transactions, or swaps in excluded
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`commodities that are based upon the occurrence, extent of an occurrence, or
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`contingency,” i.e., event contracts, “are contrary to the public interest” “if the
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`agreements, contracts, or transactions involve—
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`(I)
`(II)
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`activity that is unlawful under any Federal or State law;
`terrorism
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`(III) assassination;
`(IV) war;
`(V) gaming; or
`(VI) other similar activity determined by the Commission, by rule or
`regulation, to be contrary to the public interest.”
`7 U.S.C. § 7a-2(c)(5)(C)(i). If an event contract or transaction therein “involve[s]”
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`an enumerated category, and the Commission has determined the contract or
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`transaction is contrary to the public interest, that contract may not be listed or made
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`available for trading through a registered entity. 7 U.S.C. § 7a-2(c)(5)(C)(ii).
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`To establish a process for determining whether an event contract is
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`prohibited from listing, the Commission enacted Regulation 40.11(c), which
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`provides for a 90-day review period. 17 C.F.R. § 40.11(c). If the Commission
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`engages in this review, it must request that the registered entity suspend the listing
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`or trading of the contract under review. 17 C.F.R. § 40.11(c)(1).
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`PROCEDURAL HISTORY
`A. Agency Proceedings
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`Kalshi operates as a CFTC-registered DCM that lists event contracts for
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`trading. On June 12, 2023, Kalshi filed a product certification of certain
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`Congressional Control Contracts (or “Contracts”), pursuant to Section 5c(c)(1) of
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`the CEA and Regulation 40.2. AR 24, 26.
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`The Congressional Control Contracts are binary (yes/no) event contracts
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`based on the question: “Will <chamber of Congress> be controlled by <party> for
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`<term>?”. AR 27. The Contracts permit market participants to choose which
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`political party will control either the House of Representatives or Senate. AR 26.
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`Upon settlement, the holder of one side of the contract is paid a dollar per contract,
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`and holders of the opposite position receive nothing. AR 28.
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`Shortly after Kalshi submitted the Congressional Control Contracts, the
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`CFTC commenced a 90-day review of the contracts based on its determination that
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`the Contracts may involve an activity enumerated in Regulation 40.11(a) and
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`Section 5c(c)(5)(C) of the CEA. AR 148. In accordance with Regulation
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`40.11(c)(1), the CFTC requested that Kalshi suspend any listing and trading of the
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`Contracts during the pendency of the review period. AR 148.
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`On September 22, 2023, at the conclusion of the review period, the
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`Commission issued an Order prohibiting Kalshi from listing the Congressional
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`Control Contracts for trading. The Commission’s order determined that the
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`Contracts “involve” two enumerated activities – “gaming” and “activities unlawful
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`under state law.” The Commission then determined that the Contracts were
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`contrary to public interest because, inter alia, they (i) cannot reasonably be
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`expected to be used more than occasionally for commercial or hedging interests;
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`(ii) could be used in ways that adversely affect the integrity and perception of
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`integrity of elections; (iii) could be manipulated to influence elections or electoral
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`perceptions; and (iv) could put the CFTC in the position of having to investigate
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`election-related activities. The Commission accordingly ordered pursuant to CEA
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`Section 5c(c)(5)(C)(ii) and Regulation 40.11(a)(1), that the Congressional Control
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`Contracts are prohibited and shall not be listed for clearing or trading on or through
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`Kalshi. AR 23.
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`B. District Court Proceedings
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`On November 1, 2023, Kalshi filed this lawsuit alleging the Order violated
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`the Administrative Procedure Act, 5 U.S.C. § 706(2)(A), (C). Kalshi alleged that
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`the Commission’s application of the term “involve” in determining that the
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`Contracts involve enumerated activities for purposes of the Special Rule
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`misconstrued the CEA; that the Commission’s interpretations of statutory terms
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`“gaming” and “activity that is unlawful under any . . . State law” were also
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`incorrect; and finally that the Commission’s public interest determination was not
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`reasonable. [Dkt 1].
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`On September 6, 2024, a target date requested by Kalshi, the District Court
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`entered an order granting summary judgment for Kalshi and vacating the
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`Commission’s order. The District Court’s order stated that an opinion was
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`“forthcoming” and the opinion issued six days later, on September 12, 2024. Dkt.
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`47, 51. The CFTC orally moved for a stay pending appeal on September 12, 2024.
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`During the hearing, Kalshi refused to agree to even a 24-hour stay to allow for the
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`docketing of this appeal and the filing of this motion. The CFTC argued that this
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`case presents serious legal issues, and a stay would pose little risk of injury to
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`Kalshi. Further, the CFTC argued that the public interest lies with granting a stay
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`because of the grave risk of harm to election integrity or the perception of election
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`integrity posed by the listing and trading of the Contracts. The CFTC also argued
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`that the orderly administration of justice should allow short period of time before
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`Kalshi begins trading the contracts for the parties to brief, and this Court to decide,
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`whether trading Kalshi’s election contracts should be stayed pending appeal.
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`Kalshi opposed the motion at the hearing, arguing that there was widespread
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`trading of election betting contracts already, pointing to Polymarket, which is not
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`even permitted to offer event contracts to U.S. customers, and PredictIT, which
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`may only offer event contracts pursuant to the terms of a no action letter and
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`imposes a trading limit of $850, in contrast to Kalshi’s limit of $100 million.
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`The District Court denied the CFTC’s request for a stay pending appeal,
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`prompting the Commission to seek emergency appellate intervention. This appeal
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`followed.
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`ARGUMENT
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`A. Standard for Motions to Stay
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`The instant motion is in an unusual procedural posture because the District
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`Court initially issued a summary judgment order without an opinion, and only
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`issued the opinion hours before the Commission was compelled to come to this
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`Court for emergency relief. The motion is appropriately viewed not just as a
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`motion for stay pending appeal, but also as a request for an administrative stay that
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`will prohibit or suspend Kalshi’s offering of the election contracts for trading while
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`the parties brief, and the Court decides, whether a longer stay should issue pending
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`the resolution of this appeal. The purpose of an administrative stay is “to minimize
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`harm while an appellate court deliberates.” United States v. Texas, 144 S. Ct. 797,
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`798 (2024). As another circuit has reasoned, the administrative stay “is only
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`intended to preserve the status quo until the substantive motion for a stay pending
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`appeal can be considered on the merits.” Doe#1 v. Trump, 944 F.3d 1222, 1223
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`(9th Cir. 2019).5 The Nken factors applicable to stays pending appeal may also be
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`referenced for administrative stays. Texas, 144 S. Ct. at 798.
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`In deciding a motion to stay pending appeal, courts consider four factors:
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`“(1) whether the stay applicant has made a strong showing that he is likely to
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`succeed on the merits; (2) whether the applicant will be irreparably injured absent a
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`stay; (3) whether issuance of the stay will substantially injure the other parties
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`interested in the proceeding; and (4) where the public interest lies.” Nken v.
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`Holder, 556 U.S. 418, 434 (2009) (quoting Hilton v. Braunskill, 481 U.S. 770, 776
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`(1987)); In re NTE Connecticut, LLC, 26 F.4th 980, 987 (D.C. Cir. 2022). While
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`5 Although Kalshi raced to launch its election gambling markets in advance of this
`Court’s review, it is unlikely that they will achieve significant volume before the
`Court has a chance to rule on this interim relief.
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`the first two are the most important and require more than a “possibility” of relief
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`or potential irreparable injury, this Court has analyzed the four factors on a “sliding
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`scale,” whereby “a strong showing on one factor could make up for a weaker
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`showing on another.” Sherley v. Sebelius, 644 F.3d 388, 392-93 (D.C. Cir. 2011).
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`The “sliding scale” framework allows a movant who presents a “serious legal
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`question” on the merits to obtain a stay if “little if any harm will befall other
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`interested persons or the public and . . . denial of the order would inflict irreparable
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`injury on the movant.” Wash. Metro. Area Transit Comm’n v. Holiday Tours, Inc.,
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`559 F.2d 841, 844 (D.C. Cir. 1977).6
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`Where, as here, the party is a federal agency charged with serving the public
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`interest, see 7 U.S.C. § 5(b), the Court should consider injury and public interest
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`together because the government’s interest “is the public interest.” See Pursuing
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`America’s Greatness v. FEC, 831 F.3d 500, 511 (D.C. Cir. 2016).
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`6 It remains unresolved in this Circuit whether the sliding scale framework survives
`the Supreme Court’s decision in Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7,
`20 (2008). See Changji Esquel Textile Co. v. Raimondo, 40 F.4th 716, 726 (D.C.
`Cir. 2022); see also Nat’l R.R. Passenger Corp. (Amtrak) v. Sublease Int. Obtained
`Pursuant to Assignment & Assumption of Leasehold Int. Made as of Jan. 25, 2007,
`No. 22-CV-1043 (APM), 2024 WL 3443596, at *2 (D.D.C. July 15, 2024) (“[T]his
`court remains bound by Holiday Tours’ sliding scale.”).
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`B. Analysis of Nken Factors
`1. The CFTC is Likely to Succeed on the Merits
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`The CFTC need not show “absolute certainty of success.” Population Inst. v.
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`McPherson, 797 F.2d 1062, 1078 (D.C. Cir. 1986). Rather, it need only “raise[]
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`questions going to the merits so serious, substantial, difficult and doubtful, as to
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`make them a fair ground for litigation and thus for more deliberative
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`investigation.” Holiday Tours, 559 F.2d at 844. Here, the District Court’s
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`interpretation of the statute was deeply flawed, because it rejected the plain
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`meanings of three critical terms.
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`First, the District Court rejected the plain meaning of “involve” and missed
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`critical context demonstrating that its plain meaning applies. It held that a contract
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`or transaction only “involves” gaming if the contract or transaction’s underlying is
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`gaming. But, correctly read, to qualify for the Special Rule provision, two things
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`must be true: The Commission must determine if the “agreements” or
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`“contracts” or “transactions” are “based upon” an “occurrence, extent of an
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`occurrence, or contingency.”7 “Based upon” is a term the CEA uses to refer to
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`the underlying. Thus, these must be agreements, contracts, or transactions whose
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`underlying is an event. Separately, the Commission must determine if “such
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`7 7 U.S.C. § 7a-2(c)(5)(C)(i) (stating the provision applies to “agreements,
`contracts, transactions, or swaps in excluded commodities that are based upon” an
`event (emphasis added)).
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`agreements, contracts, or transactions [i.e., whose underlying is an event]
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`involve” a category of activity enumerated in the statute. That is, once the
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`Commission has determined that the underlying is an event, the next step is to
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`determine if the agreements or contracts or transactions—in any respect and
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`without any stated limitation—“involve” an enumerated activity such as gaming or
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`activity that is unlawful under state or federal law.8
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`The District Court mistakenly rejected the plain meaning of “involve.” It
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`acknowledged that the parties did not much disagree that the word is exceedingly
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`broad:
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`The Parties offer definitions of involve from various dictionaries that are
`largely the same, such as “[t]o contain as a part; include,” “to have as a
`necessary feature or consequence,” ECF 17-1 at 25 (citing American
`Heritage Dictionary 921 (4th ed. 2009)), and “to relate to or affect,” “to
`relate closely,” to “entail,” or to “have as an essential feature or
`consequence,” see ECF 30 at 33 (citing Merriam-Webster,
`https://perma.cc/2RS8-ZRBJ; Random House College Dictionary 703 (rev.
`ed. 1979); Riverside University Dictionary 645 (1983)); see also ECF 38-1
`at 12 (CFTC Order).
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`As several courts have observed, the word has “expansive connotations.”
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`See, e.g., United States v. Alexander, 331 F.3d 116, 131 (D.C. Cir. 2003) (citation
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`omitted). So understood, the issue is simple. As the CFTC concluded, the election
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`contracts “involve” gaming, because gambling is their purpose and essential
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`8 Id. (stating that the provision applies where “such agreements, contracts, or
`transactions … involve” an enumerated activity).
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`feature, and a “transaction” in them involves gaming because it entails gaming.
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`But the District Court expressly rejected the plain meaning. [Dkt 51 at 20]
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`(“Construing the plain meaning of involve does not resolve the Parties’ dispute”).
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`Instead, the District Court held that, because “elections are not games,” betting on
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`them is not gaming.
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`Not only is this a misreading of the word “involve,” it mistakenly conflates
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`two separate clauses in the statute, discussed above—the “based on” clause, which
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`addresses what the underlying must be, and separate clause that states what “such
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`agreements, contracts, or transactions” must involve. The District Court
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`erroneously held that to qualify for the Special Review provision, the contract or
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`transaction’s underlying must be the event, rather than any other way in which a
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`contract or transaction may involve the event.
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`To reach that result, the District Court also rejected the plain meaning of the
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`term “transaction” and held that it means “the contract” itself—but those are also
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`separate terms of the statute. In Section 5c(c)(5)(C), as in ordinary legal usage, a
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`“contract” is “[a]n agreement between two or more parties creating obligations that
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`are enforceable or otherwise recognizable at law,” CONTRACT, Black’s Law
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`Dictionary (11th ed. 2019), and a “transaction” is “the formation, performance, or
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`discharge of a contract,” TRANSACTION, Black’s Law Dictionary (11th ed.
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`2019). Congress used the word “or” to connect these terms, the use of which “is
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`almost always disjunctive, that is, the phrases it connects are to ‘be given separate
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`meanings.’” Pinson v. United States Dep’t of Just., 964 F.3d 65, 69 (D.C. Cir.
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`2020) (quoting United States v. Woods, 571 U.S. 31, 45 (2013)) (cleaned up); see
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`also United States ex rel. Polansky v. Exec. Health Res., Inc., 599 U.S. 419, 432
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`(2023) (articulating the “interpretive principle that every clause and word of a
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`statute should have meaning” (internal quotation marks omitted)). Nothing in the
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`statute suggests that the Court should apply anything but the plain meaning of
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`“contract” or “transaction” or “or.”
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`Accordingly, the statute authorized the Commission to consider two different
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`things - both Kalshi’s contracts, and “transactions” in those contracts. Keeping its
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`focus myopically on only one feature of the contract, the court held that a
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`“transaction” only “involves” gaming if the event underlying the contract
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`transacted is gaming. But that is not what the statute says.
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`It also applied an arbitrarily narrow definition of “gaming.” The
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`Commission defined “gaming” by reference to numerous sources: dictionary
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`definitions of “gaming” to mean “gambling,” and referring to both state laws and
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`federal laws that define gambling or betting as the staking something of value upon
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`the outcome of, among other things, a contest of others.
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`Thus, the Commission found that staking something of value on elections
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`amounts to “gaming” or “gambling” because it is staking something of value on
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`
`
`16
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`
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`USCA Case #24-5205 Document #2074493 Filed: 09/12/2024 Page 17 of 28
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`the outcome of a contest of electoral candidates. The District Court’s opinion
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`wrongly rejected those references to hold that “gaming requires a game.” [Dkt 51
`
`at 14].9 But there is no reason to think that Congress was concerned with only
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`certain types of gambling, least of all in the common understanding of what
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`“gaming” means. The concern was broad: to “prevent gambling through futures
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`markets.” 156 Cong. Rec. S5906-07, 2010 WL 2788026 (daily ed. July 15, 2010)
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`(statements of Sen. Diane Feinstein and Sen. Blanche Lincoln). Indeed, as the
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`Commission explained to the District Court, State and Tribal “Gaming”
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`commissions prohibit betting on elections: The Nevada Gaming Commission
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`prohibits wagers on “any election for public office.” Regulation22.pdf (nv.gov).
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`So does the Little River Band of Ottawa Indians Gaming Commission. Microsoft
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`Word - Chapter 13 - Retail Sports Betting - APPROVED - FINAL (lrboi-nsn.gov).
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`The court further erroneously rejected the Commission’s interpretation of
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`“unlawful under any … State law.” The Court held that the interpretation was too
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`broad because several state laws prohibit staking money on a contingent outcome
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`and, thus, every event contract would be unlawful under those laws and subject to
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`Commission review under this category. Dkt. 51 at 23-24. However, the
`
`
`9 The opinion also misquoted the CFTC’s proffered conclusion, instead quoting
`where the CFTC looked to state law for definitions: “Under most state laws,
`“gambling” involves a person staking something of value upon the outcome of a
`game, contest, or contingent event,” AR 8.
`17
`
`
`
`
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`USCA Case #24-5205 Document #2074493 Filed: 09/12/2024 Page 18 of 28
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`Commission’s interpretation of the category was not that broad. Rather, the
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`Commission, noting that the CEA preempts any state law that would prohibit all
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`event contracts, determined that the relevant state laws were not those targeting
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`futures trading, but those concerning “important state interests expressed in statutes
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`separate and apart from those applicable from trading on a DCM.” AR 13 n.28.
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`The Commission cited several state laws that expressly prohibit gambling on
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`elections and thus express a state interest separate from regulating derivatives
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`trading. See, e.g., Nev. Rev. Stat. § 293.830. Accordingly, the Commission’s
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`interpretation would not subject all event contracts to public interest review and
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`would not swallow the rule to render the other categories meaningless.
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`The District Court misunderstood the Commission to be asserting that state
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`laws that ban all event contracts are preempted, but laws banning specific types of
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`event contracts are not. To be clear, all state laws concerning event contracts are
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`preempted under the CEA. However, if a state law banning a certain activity
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`expresses a state interest separate from trading on a DCM, the Commission, which
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`has the authority to regulate all event contracts, may subject an event contract that
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`involves that activity to public interest review. Because several states express an
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`interest in preventing wagering on elections, the Commission rightly decided that
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`the election event contracts, which wager on the outcomes of elections, involved
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`an activity unlawful under state law.
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`
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`18
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`
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`USCA Case #24-5205 Document #2074493 Filed: 09/12/2024 Page 19 of 28
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`For these reasons, a decision rejecting these interpretations and determining
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`the applicability of the Special Rule raises, at the very least, serious questions for
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`this Court’s consideration.
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`2. The CFTC Will Be Irreparably Injured Absent a Stay and the Public
`Interest Weighs in Favor of a Stay
`When reviewing irreparable injury, this Court should look to the public
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`interest because the government’s interest in avoiding harm merges with the public
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`interest. See, e.g., Pursuing America’s Greatness, 831 F.3d at 511 (“[T]he
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`government’s interest is the public interest.”). The public interest concerns relating
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`to election gambling on a federally regulated exchange cannot be overstated. The
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`Commission’s order made extensive findings about adverse effects posed by the
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`Contracts on election integrity or the perception of election integrity. This
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`included concerns that the Contracts will create monetary incentives to vote
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`(including as an organized collective) for particular candidates, incentivize the
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`spread of misinformation in order to influence the markets, or incentivize the use
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`of the market to influence perceptions about elections. The Commission observed
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`the difficulty of guarding against misinformation and manipulative activity where
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`the Contracts have no underlying cash market and price forming information and
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`would be driven largely by opaque and unregulated sources such as polling, voter
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`surveys, and even social media. AR 20-21.
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`
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`19
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`
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`USCA Case #24-5205 Document #2074493 Filed: 09/12/2024 Page 20 of 28
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`While the District Court thought this interest was too speculative, these are
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`not abstract concerns. The Commission’s order cited detailed examples of “fake
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`polls” and how they had consequences in corresponding event contracts. AR 22
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`n.39 (citing Tyler Yeargain, Fake Polls, Real Consequences: The Rise of Fake
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`Polls and the Case for Criminal Liability, 85 MO. L. REV. 129 (2020)). Moreover,
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`these real-world examples of market manipulation occurred on a market with a
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`trading limit of only $850 per contract.10 By contrast, Kalshi’s election gambling
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`contracts propose position limits as high as $100 million for institutional customers
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`and high net-worth individuals. The incentive for wrongdoing in connection with
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`Kalshi’s Contracts is exponential. Moreover, there are reports of recent attempted
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`manipulation just last week in the election event contracts offered on Polymarket.11
`
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`10 Tyler Yeargain, Fake Polls, Real Consequences: The Rise of Fake Polls and the
`Case for Criminal Liability, 85 MO. L. REV. 129, 134 (2020)).
`11 Polymarket, which cannot offer event contracts to U.S. persons, experienced a
`“spectacular” manipulation attempt with “a group of traders” betting “heavily on
`Harris and against Trump,” wagering millions of dollars to manipulate the contract
`during a certain period. See Rajiv Sethi, A Failed Attempt at Market Manipulation,
`(Sept. 7, 2024) https://rajivsethi.substack.com/p/a-failed-attempt-at-prediction-
`market. The Commission submits that although this particular attempt failed,
`Kalshi admitted in its own briefing that “short-term risk exists with any derivative.
`A trader can always try to manipulate short-term pricing by spreading falsehoods
`and trading large quantities.” [Dkt 36 at 30]. Where, as here, there are no
`underlying markets to help assess manipulation events—and where, as here—these
`very markets are being touted as important public information, this risk is much
`more stark.
`
`
`
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`20
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`USCA Case #24-5205 Document #2074493 Filed: 09/12/2024 Page 21 of 28
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`
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`Kalshi has not proposed prohibiting foreign entities or members of the media
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`from trading. These risks cannot be overestimated
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