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
`
`
`
`
`
`
`
`
`
`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
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`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-
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`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 3 of 32
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`INTRODUCTION
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`KalshiEx LLC (Kalshi) is a CFTC-regulated exchange that offers
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`event contracts—financial products that allow traders to hedge risks by
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`buying contracts that pay out if a contingent event occurs. In June 2023,
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`Kalshi sought to list event contracts contingent on which party controls
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`the Senate and the House after the November 2024 election. Similar
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`products are already available on unregulated exchanges, but Kalshi
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`seeks to list these instruments in a regulated environment. The CFTC,
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`however, issued an order prohibiting Kalshi from listing them.
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`Kalshi challenged that order. The Commodity Exchange Act (CEA)
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`allows the CFTC to review (and potentially ban) only event contracts that
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`“involve” “activity that is unlawful under any Federal or State law,”
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`“terrorism,” “assassination,” “war,” “gaming,” or “other similar activity”
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`designated by regulation. 7 U.S.C. § 7a-2(c)(5)(C)(i). “Elections” are not
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`on that list. And contrary to the CFTC’s reasoning, the contracts here
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`involve neither “unlawful activity” (elections are not illegal) nor “gaming”
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`(elections are not games). After full merits briefing and oral argument,
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`the District Court (Cobb, J.) agreed with Kalshi and vacated the CFTC’s
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`order in a thorough and thoughtful 27-page opinion. ECF 51 (Op.).
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`1
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`In a transparent bid to run out the clock, the CFTC now asks this
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`Court to keep its unlawful order in effect pending appeal, rendering these
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`time-limited contracts worthless. The Court should deny that request,
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`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.
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`On the merits, the Commission has not shown a likelihood that this
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`Court will reverse the District Court’s judgment. Election contracts do
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`not “involve … unlawful activity,” and adopting the CFTC’s contrary
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`position would upend the statute’s structure (and render the other
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`enumerated activities meaningless) by empowering the agency to ban
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`any event contract. Nor do Kalshi’s contracts “involve … gaming.” This
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`category requires a predicate “game,” and elections are anything but.
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`And once again, the Commission’s contrary interpretation sweeps every
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`event contract into a single exception. The CFTC’s indefensible reading
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`is no more likely to persuade this Court than it did the District Court. As
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`Judge Cobb aptly observed, it “just cannot be right.” Op.17.
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`2
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`On the equities, the District Court found that the CFTC failed to
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`establish that it faces any injury from the trading of these contracts. The
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`Commission worries that these contracts would create incentives (or be
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`used as a vehicle) to spread electoral misinformation. But other election-
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`prediction markets (including Polymarket and PredictIt) are operating
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`right now outside of any federal oversight, and are regularly cited by the
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`press for their predictive data. So a stay would accomplish nothing for
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`election integrity; its only effect would be to confine all election trading
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`activity to unregulated exchanges. That would harm the public interest.
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`It would also harm Kalshi—a heavily regulated exchange that has made
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`an enormous investment in these time-limited markets.
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`In short, having unlawfully blocked Kalshi’s contracts for over a
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`year, the CFTC seeks months of additional delay to destroy their value
`
`and withhold them from the public. This Court should not play along.
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`The CFTC had every opportunity to make its case, and it lost fair and
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`square on the law after careful consideration below. The District Court
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`also correctly recognized that there is no basis in the record for a stay
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`pending appeal. This Court should deny the CFTC’s motion.
`
`3
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`
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`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 6 of 32
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`
`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
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`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
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`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 7 of 32
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`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
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`5
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`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 8 of 32
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`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
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`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 9 of 32
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`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
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`Commission’s statutory authority to prohibit. Id.
`
`7
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`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 10 of 32
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`The CFTC repeatedly sought to stay the District Court’s ruling.
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`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
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`the CFTC and Judge Cobb acknowledged that Kalshi was free to list its
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`contracts (Tr.33:5-34:3)—Kalshi did so. They traded for about eight
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`hours on September 12, before this Court entered an administrative stay
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`to consider the CFTC’s renewed stay motion on appeal.
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`ARGUMENT
`
`I.
`
`THE CFTC IS NOT ENTITLED TO A STAY PENDING APPEAL.
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`A stay pending appeal is an “exceptional” remedy. CREW v. FEC,
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`904 F.3d 1014, 1019 (D.C. Cir. 2018) (per curiam). This Court considers
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`“(1) whether the [movant] has made a strong showing that [it] is likely to
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`succeed on the merits; (2) whether the [movant] will be irreparably
`
`injured absent a stay; (3) whether issuance of the stay will substantially
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`8
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`injure the other parties interested in the proceeding; and (4) where the
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`public interest lies.” Nken v. Holder, 556 U.S. 418, 434 (2009). When the
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`movant is a federal agency, the second and fourth factors merge. Mot.12.
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`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
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`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,
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`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.
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`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,
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`the District Court correctly held that the answer is “no.”
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`9
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`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 12 of 32
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`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
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`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.
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`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
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`Mot.13-15 (ascribing to the court a narrower, straw-man interpretation).
`
`10
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`USCA Case #24-5205 Document #2074739 Filed: 09/13/2024 Page 13 of 32
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`So an event contract “involves” unlawful activity if the event relates to
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`an illegal act (e.g., a contract on whether a piece of art will be stolen).
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`Kalshi’s “contracts involve elections (and politics, congressional control,
`
`and other related topics)”—“not illegal activities.” Op.14, 19.
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`The District Court adopted this event-focused interpretation of the
`
`statute in part because that is the only interpretation that works for the
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`neighboring enumerated activities—terrorism, assassination, and war.
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`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
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`11
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`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.
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`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.
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`The Commission’s reading also creates other “glaring issue[s].”
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`Op.16. On its view, an event contract involves unlawful activity if
`
`trading the contract would violate state law. But that makes no sense,
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`because any state law that prohibits trading in event contracts would be
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`preempted by the Commission’s exclusive jurisdiction over derivatives
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`markets. Op.24; 7 U.S.C. § 2(a)(1)(A); Leist v. Simplot, 638 F.2d 283, 322
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`(2d Cir. 1980) (Friendly, J.).
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`12
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`Trying to square the circle, the Commission suggests the unlawful-
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`activity exception applies whenever trading a contract would be illegal,
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`but for federal preemption. Mot.18. That does not work either. At least
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`29 States prohibit staking money on any contingent event.1 So under the
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`Commission’s reading, all event contracts “involve” unlawful activity. By
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`subjecting every event contract to review, the Commission’s reading
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`would render the other enumerated activities surplusage, and “swallow
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`the special rule’s provisions authorizing the CFTC to review only event
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`contracts that relate to specific, enumerated topics.” Op.24. That “would
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`also effectively undo the Congressional amendment to the CEA that
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`eliminated the CFTC’s across-the-board review.” Id. As the District
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`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.
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`13
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`Court recognized, that “just cannot be right.” Op.17. The Commission’s
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`efforts to evade this logic below were not “coherent.” Op.24 n.15. Its
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`efforts on appeal (Mot.17-18) are no better.
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`In sum, “[t]he only formulation of the interaction between ‘involve’
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`and ‘unlawful activity’ that actually works … is if the contract or
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`transaction’s underlying event relates in some way to activity that is
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`illegal—not if the act of staking money on the contract’s underlying would
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`be unlawful under any state law.” Op.24. Elections are not illegal, and
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`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
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`District Court correctly held, the CFTC exceeded its powers by subjecting
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`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
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`“involve … gaming” either. This, too, is a purely legal question reviewed
`
`de novo using traditional tools of statutory interpretation. Loper Bright
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`Enters. v. Raimondo, 144 S. Ct. 2244, 2261-66 (2024). “After considering
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`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
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`The proper interpretation is simple: “‘gaming,’ as used in the special
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`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
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`events relate to activities “engaged in for diversion or amusement.”
`
`Game, MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY (11th ed. 2020).
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`Indeed, those examples are drawn verbatim from the statute’s only
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`legislative history, see 156 Cong. Rec. S5907 (daily ed. July 15, 2010),
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`which thus strongly corroborates Kalshi’s interpretation (Op.25).
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`This reading also aligns with the ordinary meaning of “gaming.”
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`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
`
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`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,
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`Congress did not empower the Commission to prohibit event contracts on
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`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.
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`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
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`will imperil American democracy by incentivizing misinformation or by
`
`using the markets themselves to distort electoral perceptions. Mot.19.
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`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
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`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
`
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`whether consumers will also have access to a transparent market that is
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`subject to comprehensive regulation and CFTC oversight (including
`
`access to the identity of all traders), and that is limited to participation
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`by U.S. persons, as Kalshi’s exchange is (contra Mot.21). The CFTC tries
`
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