USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 1 of 39
`
`
`[ORAL ARGUMENT NOT YET SCHEDULED]
`No. 24-5205
`
`__________________________________________________________________
`
`UNITED STATES COURT OF APPEALS
`FOR THE DISTRICT OF COLUMBIA CIRCUIT
`
`
`
`KALSHIEX LLC,
`Appellee,
`
`v.
`
`COMMODITY FUTURES TRADING COMMISSION,
`Appellant.
`___________________________________________________________________
`
`On Appeal from the U.S. District Court
`for the District of Columbia
`Case No. 1:23-cv-03257-JMC (Hon. Jia M. Cobb)
`
`
`
`
`
`
`
`
`
`
`
`
`BRIEF AMICUS CURIAE, BY CONSENT, OF BETTER MARKETS, INC.
`IN SUPPORT OF APPELLANT AND REVERSAL
`
`
`Stephen W. Hall
`Brady C. Williams
`Better Markets, Inc.
`2000 Pennsylvania Ave., NW
`Suite 4008
`Washington, DC 20006
`(202) 549-3382
`shall@bettermarkets.org
`bwilliams@bettermarkets.org
`Counsel for Amicus Curiae
`
`October 23, 2024
`
`
`
`
`
`
`
`
`
`
`i
`
`
`
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 2 of 39
`
`
`CORPORATE DISCLOSURE STATEMENT
`
`Pursuant to Rules 26.1 and 29 of the Federal Rules of Appellate Procedure
`
`(“FRAP”) and D.C. Circuit Rules 26.1 and 29, Better Markets, Inc. (“Better
`
`Markets”) states that it is a non-profit organization that advocates for the public
`
`interest in the financial markets; that it has no parent company; and that there is no
`
`publicly-held company that has any ownership interest in Better Markets.
`
`
`
`ii
`
`
`
`
`
`
`
`
`
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 3 of 39
`
`
`REPRESENTATION OF CONSENT FROM ALL PARTIES AND
`CERTIFICATE STATING WHY A SEPARATE BRIEF IS NECESSARY
`
`In accordance with FRAP 29(a)(2) and D.C. Circuit Rule 29(b), undersigned
`
`counsel for Better Markets certifies that all parties have consented to the filing of
`
`this brief.1
`
`
`
`Pursuant to D.C. Circuit Rule 29(d), undersigned counsel for Better Markets
`
`further certifies that this separate brief is necessary. Better Markets is aware of no
`
`other amicus curiae planning to file a brief in support of the appellant.
`
`
`1 In accordance with FRAP 29(a)(4)(E), Better Markets certifies that (i) no counsel
`for any party authored this brief in whole or in part; (ii) no party or party’s counsel
`contributed money that was intended to fund preparing or submitting this brief;
`and (iii) no person—other than Better Markets, its members (of which there are
`none), or its counsel—contributed money that was intended to fund preparing or
`submitting this brief.
`
`iii
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 4 of 39
`
`
`TABLE OF CONTENTS
`
`
`CORPORATE DISCLOSURE STATEMENT……………………………………. ii
`
`REPRESENTATION OF CONSENT FROM ALL PARTIES……………………. iii
`
`TABLE OF AUTHORITIES………………………………………………………. v
`
`IDENTITY AND INTEREST OF THE AMICUS.…………………………........... 1
`
`SUMMARY OF ARGUMENT.…………………………………………………… 3
`
`I.
`
`THE CFTC CORRECTLY INTERPRETED SECTION 5C, WHILE THE
`DISTRICT COURT MISREAD THE PROVISION, REPEATEDLY
`FAVORING UNDULY NARROW MEANINGS OF THE KEY
`TERMS……………………………………………………………………... 5
`
`
`II. THE DISTRICT COURT IMPROPERLY IGNORED THE REMEDIAL
`NATURE OF THE COMMODITY EXCHANGE ACT AND THE THREATS
`THAT ELECTION GAMBLING CONTRACTS POSE TO ELECTION
`INTEGRITY, INVESTORS, AND THE CFTC ITSELF.….......................... 7
`
`
`III. ALLOWING ELECTION GAMBLING CONTRACTS (“EGC’S”) TO
`TRADE THREATENS TO UNDERMINE ELECTION INTEGRITY, HARM
`COUNTLESS INVESTORS, AND BURDEN THE CFTC WITH AN
`INAPPROPIRATE DUTY TO POLICE ELECTIONS.…….…………….. 11
`
`
`
`
`
`
`
`A. EGCs will undermine election integrity.…………………………..... 11
`
`B. EGCs are rich targets for market manipulation, which will be difficult
`to detect…………………………………………………………….. 17
`
`
`C. EGCs will victimize investors on a large scale…………………...... 19
`
`D. EGCs place the CFTC in the untenable and burdensome position of
`policing elections…………………………………………………… 21
`
`iv
`
`
`
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 5 of 39
`
`
`IV. THE DISTRICT COURT ALSO FAILED TO CONSIDER THE CFTC’S
`EXTENSIVE KNOWLEDGE AND EXPERIENCE IN DEALING WITH
`EVENT CONTRACTS, INCLUDING THOSE INVOLVING ELECTION
`GAMBLING………………………………………………………………. 23
`
`
`
`A. Notwithstanding the end of Chevron deference, federal courts remain
`entitled to consider an agency’s body of experience and informed
`judgment
`about
`the
`issues
`presented
`upon
`judicial
`review………………………………………………………………. 23
`
`
`B. The CFTC has extensive experience in dealing with the complex issues
`presented……………………………………………………............. 25
`
`
`CONCLUSION…………………………………………………………………... 28
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`v
`
`
`
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 6 of 39
`
`
`TABLE OF AUTHORITIES
`
`
`
`CASES
`
`Ball v. Gilbert, 53 Mass. 397 (1847) ....................................................................... 15
`
`Bettis v. Reynolds, 34 N.C. 344 (1851) ................................................................... 15
`
`CFTC v. R.J. Fitzgerald & Co., 310 F.3d 1321 (11th Cir. 2002) .............................. 8
`
`Clarke v. CFTC, No. 1:22-cv-909 (W.D. Tex.) ....................................................... 27
`
`Commonwealth v. Crass, 203 S.W. 708 (Ky. 1918) ................................................ 16
`
`David v. Ransom, 1 Greene 383 (Iowa 1848) .......................................................... 15
`
`KalshiEX LLC v. CFTC, No. 23-3257 (JMC), 2024 WL 4164694 (Sept. 12, 2024)
` ..................................................................................................................... .3, 4, 10
`
`KalshiEX LLC v. CFTC, No. 24-5205, 2024 WL 4364204 (D.C. Cir. 2024) .......... 11
`
`Leverett v. Stegal, 23 Ga. 259 (1857) ...................................................................... 16
`
`Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024) ................... 5, 23, 24
`
`McLennan v. Whidon, 48 S.E. 201, 120 Ga. 666 (1904) ......................................... 16
`
`Merchants’ Savings, Loan & Trust Co. v. Goodrich, 75 Ill. 554 (1874) ................. 16
`
`Nichols v. Mudgett, 32 Vt. 546 (1860) .................................................................... 16
`
`Quarles v. State, 24 Tenn. 561 (1845) ..................................................................... 16
`
`R&W Technical Servs., Ltd. v. CFTC, 205 F.3d 165 (5th Cir. 2000) ......................... 7
`
`Shumate v. Commonwealth, 56 Va. 653 (1860) ....................................................... 16
`
`Stoddard v. Martin, 1 R.I. 1 (1828) ......................................................................... 15
`
`Wroth v. Johnson, 4 H. & McH. 284 (Md. Gen. Ct. 1799) ...................................... 14
`
`STATUTES
`
`7 U.S.C. § 5 ............................................................................................................... 8
`
`7 U.S.C. § 7 ............................................................................................................. 19
`
`7 U.S.C. § 7a-2 .......................................................................................................... 3
`
`7 U.S.C. § 9 ............................................................................................................. 22
`
`OTHER AUTHORITIES
`
`156 Cong. Rec. S5906-07, 2010 WL 2788026 (daily ed. July 15, 2010) ................. 9
`
`
`
`vi
`
`
`
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 7 of 39
`
`
`Aila Slisco, Polymarket Prediction Platform Possibly Manipulated to Favor
`Trump: Report, NEWSWEEK (Oct. 18, 2024) .................................................... 2, 12
`
`Alex Altman, Political Betting Market Raises Questions About Insider Trading,
`TIME (Oct. 6 2015) ............................................................................................... 18
`
`Alex Klein, InTrade And Jon Hunstman: Why the Media’s Faith in the Internet
`Betting Ring Is Foolish, THE NEW REPUBLIC (Jun. 21, 2011) .............................. 18
`
`Alexander Osipovich, A Mystery $30 Million Wave of Pro-Trump Bets Has Moved
`a Popular Prediction Market, THE WALL STREET JOURNAL (Oct. 18, 2024) ... 2, 12
`
`Better Markets, Comment Letter to CFTC re KalshiEx, LLC’s Proposed Political
`Event Contract (Sept. 25, 2024) ............................................................................. 1
`
`Brad Plumer, How to Swing the Prediction Markets and Boost Mitt Romney’s
`Fortunes, THE WASHINGTON POST (Oct. 23, 2012) ............................................. 18
`
`CFTC Appellant Brief, KalshiEX LLC v. CFTC, 2024 WL 4164694, Doc.
`#2080035 (D.C. Cir., Oct. 16, 2024) ..................................................................... 6
`
`CFTC, CFTC Disapproves KalshiEX LLC’s Congressional Control Contracts
`(Sept. 22, 2023) (“CFTC Order”) ............................................ 6, 11, 12, 14, 17, 18
`
`Comment Letter of Reps. Sarbanes and Raskin ...................................................... 22
`
`Congressional Research Service, Financial Services and General Government
`(FSGG) FY 2024 Appropriations: Overview (Oct. 5, 2023) ................................ 22
`
`Dan Mangan, Kalshi Expands Trump, Harris Election Bet Options, Adds Senate
`Races; CFTC Objects, CNBC (Oct. 9, 2024) ...................................................... 12
`
`Dave Aron & Matt Jones, States’ Big Gamble on Sports Betting, 12 UNLV GAMING
`L. J. 53 (2021) ...................................................................................................... 27
`
`Dennis M. Kelleher, Jason Grimes, and Andres Chovil, Securities—Democratizing
`Equity Markets With And Without Exploitation: Robinhood, Gamestop, Hedge
`Funds, Gamification, High Frequency Trading, And More, 44 W. NEW ENG. L.
`REV. 51 (2022) ............................................................................................... 20, 21
`
`Jeffrey Steven Gordon, Silence for Sale, 71 ALA. L. REV. 1109 (2020) ........... 14, 15
`
`Kalshi D. Ct. Br. ...................................................................................................... 21
`
`KalshiEx LLC v. CFTC, 2024 WL 4164694 (Sept. 12, 2024) ................................. 24
`
`Katherine Sayre, A Psychiatrist Tried to Quit Gambling. Betting Apps Kept Her
`Hooked, WALL ST. J. (Feb. 18, 2024) ................................................................... 20
`
`
`
`vii
`
`
`
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 8 of 39
`
`
`Letter from Vincent McGonagle, Dir., Div. of Mkt. Oversight, to Neil Quigley,
`Deputy Vice-Chancellor, Research, Victoria Univ. of Wellington, (Oct. 29, 2014)
` .............................................................................................................................. 27
`
`National Conference of State Legislatures, Wagering on Elections? Not a Smart
`Bet (Sept. 17, 2014) .............................................................................................. 19
`
`Paul W. Rhode & Koleman S. Strumpf, Manipulating Political Stock Markets: A
`Field Experiment and a Century of Observational Data (Jan. 2007) .................. 18
`
`Tarek Mansour, X (Oct. 9, 2024, 6:07 PM EST)..................................................... 20
`
`U.S. COMMODITIES FUTURES COMMISSION, Order Prohibiting the Listing or
`Trading of Political Event Contracts (Apr. 2, 2012) ...................................... 26, 27
`
`REGULATIONS
`
`76 Fed. Reg. 44776 (July 27, 2011), codified at 17 C.F.R. § 40.11 ........................ 26
`
`Event Contracts, 89 Fed. Reg. 48,975; 48992 (June 10, 2024; proposed May 10,
`2024) .................................................................................................................... 26
`
`
`
`viii
`
`
`
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 9 of 39
`
`
`IDENTITY AND INTEREST OF THE AMICUS CURIAE
`
`Better Markets is a nonprofit, nonpartisan organization that promotes the
`
`public interest in the financial markets through comment letters on proposed rules,
`
`independent research, amicus curiae briefs, public advocacy, and Congressional
`
`testimony. It advocates for reforms that stabilize our financial system, protect
`
`investors from fraud and abuse, and make all of our financial markets—securities,
`
`banking, and derivatives—more fair and efficient. Better Markets has filed hundreds
`
`of comment letters with the financial regulators, including the Commodity Futures
`
`Trading Commission (“CFTC” or “Commission”), and dozens of amicus briefs in
`
`the federal courts supporting strong financial regulation.
`
`Much of Better Markets’ advocacy has focused specifically on the derivatives
`
`markets, including the importance of measures to prevent market manipulation and
`
`excessive speculation. See generally www.bettermarkets.org. Better Markets filed
`
`an extensive comment letter urging the CFTC to prohibit the listing by the appellant
`
`(“Kalshi”) of the election gambling contracts at issue in this case (“EGCs”).2
`
`Better Markets has a strong interest in this case because a decision affirming
`
`the district court’s decision to lift the CFTC’s ban on Kalshi’s election gambling
`
`contracts would undermine important goals that Better Markets seeks to advance
`
`
`2 Better Markets, Comment Letter to CFTC re KalshiEx, LLC’s Proposed Political
`Event
`Contract
`(Sept.
`25,
`2022),
`https://bettermarkets.org/wp-
`content/uploads/2022/09/Better_Markets_ Comment_Letter_KalshiEX.pdf.
`
`
`
`
`
`1
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 10 of 39
`
`
`through its advocacy. Inevitably, in addition to undermining the integrity of our
`
`elections, EGCs will foster market manipulation and victimize potentially millions
`
`of investors. EGCs will unleash all of these harms without supplying either of the
`
`tools for which the derivatives markets were established: hedging against
`
`commodity price risk and establishing pricing benchmarks so that Americans can
`
`rely on stable prices for the groceries, gas, and many other products they depend
`
`upon in their everyday lives.
`
`All of these threats are being amplified in real time, as Kalshi is furiously
`
`developing and offering dozens of additional gambling contracts involving a wide
`
`range of election outcomes, in addition to its original “congressional control” wager.
`
`See Kalshi, Elections, https://kalshi.com/events/elections (last visited Oct. 20,
`
`2024). And evidence is fast emerging that these types of election wagering contracts
`
`may already be serving as instrumentalities of either election manipulation for
`
`political gain, market manipulation for financial gain, or both.3 The stakes are
`
`enormous, as these contracts may eventually sway any number of extremely close
`
`
`3 Alexander Osipovich, A Mystery $30 Million Wave of Pro-Trump Bets Has Moved
`a Popular Prediction Market, WALL ST.
`J.
`
`(Oct. 18, 2024),
`https://www.wsj.com/finance/betting-election-pro-trump-ad74aa71?; Aila Slisco,
`Polymarket Prediction Platform Possibly Manipulated to Favor Trump: Report,
`NEWSWEEK (Oct. 18, 2024), https://www.newsweek.com/polymarket-prediction-
`platform-possibly-manipulated-favor-trump-report-1971589.
`
`
`
`
`
`2
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 11 of 39
`
`
`election contests and fundamentally alter our democratic landscape. Better Markets
`
`is therefore seeking to defend the public interest against the threats posed by EGCs.
`
`
`
`SUMMARY OF ARGUMENT
`
`First, the district court misinterpreted Section 5c(c)(5)(c)(i) of the Commodity
`
`Exchange Act (“CEA”), 7 U.S.C. § 7a-2(c)(5)(C)(i) (“Section 5c”), under core
`
`principles of statutory construction. See KalshiEX LLC v. CFTC, No. 23-3257
`
`(JMC), 2024 WL 4164694 (D.D.C. 2024). The court consistently chose to read the
`
`key terms in the statute narrowly, deviating from their plain meaning. Based on
`
`those unwarranted and restrictive interpretations of the law, the court erroneously
`
`vacated the CFTC’s determination that Kalshi’s election gambling contracts are
`
`subject to public interest review and that they should be prohibited as contrary to the
`
`public interest.
`
`Second, the district court compounded these basic interpretive errors by
`
`failing to consider the ramifications of its ruling, including the long list of threats
`
`that EGCs pose to election integrity, investors, and the CFTC’s ability to fulfill its
`
`core mission. Ignoring these threats to the public interest was especially
`
`inappropriate since the CEA, and Section 5c in particular, epitomizes a remedial
`
`statute that should be read broadly, not narrowly and technically, to effectuate its
`
`underlying purposes.
`
`
`
`
`
`3
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 12 of 39
`
`
`Third, had the court interpreted the wording in Section 5c in light of the public
`
`interests that are in jeopardy and Congress’s obvious intention to guard against such
`
`threats, it would have had to draw different conclusions about the proper meaning
`
`and scope of the statute. Those threats are prodigious. As detailed below, EGCs will
`
`create powerful tools and incentives for engaging in election interference; they will
`
`foster market manipulation and victimize investors on a large scale; and they will
`
`weaken the CFTC’s ability to discharge its core mission by requiring it to divert its
`
`already scarce resources to policing elections, a daunting task that it lacks the budget
`
`or expertise to perform.
`
`Finally, the district court erroneously declined to consider the CFTC’s
`
`extensive knowledge and experience on the issues presented in this case surrounding
`
`event contracts. In a short footnote, the court observed it would not consult that
`
`“body of experience and informed judgment” because the CFTC had not invited the
`
`court to do so. See KalshiEX LLC v. CFTC, 2024 WL 4164694 at *13 n.9 (D.C. Cir.
`
`2024). But turning a blind eye to the CFTC’s ample reservoir of expertise on the
`
`issues presented was a mistake on three levels. First, the Supreme Court recently
`
`affirmed that although courts may no longer defer or yield to an agency’s
`
`interpretations of the law, they nevertheless may—and indeed are expected to—draw
`
`on an agency’s expert views about the legal and factual matters arising during
`
`judicial review. Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 2262, 2267
`
`
`
`
`
`4
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 13 of 39
`
`
`(2024). Second, nothing in the Loper Bright decision indicates that courts may only
`
`take advantage of an agency’s knowledge and expertise if petitioned to do so by a
`
`party. Third, the CFTC does in fact have extensive knowledge and experience
`
`regarding the event contracts and issues presented in this case, acquired over the past
`
`30 years and consistently applied in guidance, no-action letters, and rulemakings.
`
`Obviously, had the district court given proper weight to the CFTC’s interpretation of
`
`the law and the factual underpinnings of its Order, it would have to have read Section
`
`5c very differently, to encompass Kalshi’s EGCs.
`
`I.
`
`THE CFTC CORRECTLY INTERPRETED SECTION 5C, WHILE
`THE DISTRICT COURT MISREAD THE
`PROVISION,
`REPEATEDLY FAVORING UNDULY NARROW MEANINGS OF THE
`KEY TERMS.
`
`In its September 22, 2023 Order (“Order” or “CFTC Order”),4 the CFTC
`
`correctly concluded that EGCs fall into two distinct categories of event contracts
`
`listed in Section 5c that the CFTC may subject to public interest scrutiny. First, it
`
`arrived at the legally sound and intuitively sensible conclusion that trading in EGCs
`
`involves “gaming” because gaming is widely understood to encompass betting or
`
`wagering on a wide variety of contests, including election contests. See CFTC Order
`
`at 8–11. The CFTC also concluded that EGCs involve “activity that is unlawful”
`
`
`4 CFTC, CFTC Disapproves KalshiEX LLC’s Congressional Control Contracts
`(Sept. 22, 2023), https://www.cftc.gov/PressRoom/PressReleases/8780-23.
`
`
`
`
`
`5
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 14 of 39
`
`
`under state law. Id. This finding rested on the plain fact that under dozens of state
`
`laws and state judicial decisions, gambling on elections—what transacting in EGCs
`
`amounts to—is flatly prohibited. CFTC Order at 11 & n.26 (cataloging 22 state laws
`
`that criminalize making any bet or wager on the result of an election); id. at 12 n.27
`
`(cataloging 17 state court decisions, spanning over 150 years, that declare wagering
`
`on elections as against public policy). As the predicate for both of these conclusions,
`
`the CFTC also rightly concluded that the word “involve,” as used in Section 5c, is a
`
`broad term that refers not only to the events or activities underlying a contract but
`
`also to instances where trading in the contract constitutes one of the activities
`
`enumerated in Section 5c—in this case “gaming” as well activity outlawed by many
`
`states. CFTC Order at 5–7.
`
`The district court nevertheless vacated the Order based on multiple
`
`misinterpretations of the law. In its opening brief, the CFTC has persuasively
`
`demonstrated, as a matter of basic statutory construction, that the district court
`
`erroneously rejected the plain and ordinary meaning of the key terms and phrases in
`
`Section 5c. See generally CFTC Appellant Brief, KalshiEX LLC v. CFTC, 2024 WL
`
`4164694, No. 2080035 (D.C. Cir., Oct. 16, 2024). Specifically, the court erred
`
`because it adopted exceedingly narrow definitions of the terms “gaming” and
`
`“involve”; ignored relevant sources of meaning for those terms; misconstrued the
`
`status of gambling under state law through a misapprehension about the role of
`
`
`
`
`
`6
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 15 of 39
`
`
`preemption; ignored the statutory context in which the key words appear in the CEA;
`
`misapplied or shunned canons of statutory construction; and at times offered no
`
`support at all for its conclusions.
`
`Purely as a matter of statutory interpretation, then, the district court erred, and
`
`its ruling in favor of Kalshi should be reversed for that reason. As explained below,
`
`however, the court further erred by failing to consider the ways in which EGCs
`
`jeopardize the public interest and by declining to draw on the CFTC’s extensive
`
`knowledge and expertise as guidance on the proper interpretation of Section 5c.
`
`II. THE DISTRICT COURT IMPROPERLY IGNORED THE REMEDIAL
`NATURE OF THE COMMODITY EXCHANGE ACT AND THE
`THREATS THAT EGC’S POSE TO ELECTION INTEGRITY,
`INVESTORS, AND THE CFTC ITSELF.
`
`The district court further erred because it fashioned its narrow interpretation
`
`of Section 5c without considering any of the remedial purposes underlying the CEA
`
`and Section 5c in particular. The court ignored all of the harmful consequences that
`
`will follow from allowing EGCs to trade, which Congress specifically sought to
`
`prevent in Section 5c. The court thus violated the canon that remedial statutes are
`
`to be construed broadly, not hyper-technically or narrowly in ways that frustrate
`
`Congress’s objectives.
`
`It is well-established that remedial statutes are to be construed broadly to
`
`effectuate their remedial purposes. See R&W Technical Servs., Ltd. v. CFTC, 205
`
`F.3d 165, 169 (5th Cir. 2000) (“Remedial statutes are to be construed liberally, and
`
`
`
`
`
`7
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 16 of 39
`
`
`in an era of increasing individual participation in commodities markets, the need for
`
`such protection has not lessened.”). It is equally clear that the CEA is such a
`
`remedial statute. See CFTC v. R.J. Fitzgerald & Co., 310 F.3d 1321, 1329 (11th Cir.
`
`2002) (“[W]e are guided by the principle that the CEA is a remedial statute that
`
`serves the crucial purpose of protecting the innocent individual investor—who may
`
`know little about the intricacies and complexities of the commodities market—from
`
`being misled or deceived.”). As a general matter, the “Findings” clause in the CEA
`
`shows that the statute is a thoroughly remedial one, animated by the need to serve
`
`the public interest: “The transactions subject to this chapter are entered into regularly
`
`in interstate and international commerce and are affected with a national public
`
`interest by providing a means for managing and assuming price risks, discovering
`
`prices, or disseminating pricing information through trading in liquid, fair and
`
`financially secure trading facilities.” 7 U.S.C. § 5(a).
`
`That section goes further and delineates the specific remedial purposes that
`
`underlie the law, including protecting investors, combatting manipulation, ensuring
`
`the integrity of the markets, and even promoting “responsible” innovation. 7 U.S.C.
`
`§ 5(b). These are among the very public interests that are threatened by the EGCs.
`
`As explained below, those contracts will—in addition to compromising the integrity
`
`of elections—inflict huge investor losses, create an exceptionally hospitable
`
`
`
`
`
`8
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 17 of 39
`
`
`environment for manipulation, undermine the traditional role of the derivatives
`
`markets, and give “responsible innovation” in finance a bad name.
`
`The obligation of the district court to consider the impact of its decision on
`
`the public interest carries special force in this case. At issue is the scope of Section
`
`5c, a provision in the law that is singularly “remedial” because it was expressly
`
`written by Congress to safeguard the public interest against the unique perils
`
`associated with certain event contracts. The plain wording and thrust of the
`
`provision is to give the CFTC the authority to consider whether certain event
`
`contracts are “contrary to the public interest” and therefore should be prohibited.
`
`And the types of contracts that Congress made subject to such review in
`
`Section 5c pose the gravest possible threats to the public interest. In that list,
`
`“gaming” (as well as activity that is illegal under state law) keeps company with war,
`
`terrorism, and assassination. This grouping reflects the intensity of Congress’s
`
`concern over anticipated efforts to turn the derivatives markets into casinos—a
`
`phenomenon we are witnessing in real time. See articles cited in n.3 supra. In short,
`
`Section 5c reflects Congress’s heightened concern that trading in certain types of
`
`event contracts—including election gambling—can pose exceptionally serious
`
`threats to the markets, investors, and other societal values. 156 Cong. Rec. S5906-
`
`07, 2010 WL 2788026 (daily ed. July 15, 2010) (confirming in colloquy between
`
`
`
`
`
`9
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 18 of 39
`
`
`Senators that the “gaming” provision is intended to prevent “derivatives contracts”
`
`that “exist predominately to enable gambling”).
`
`The district court justified its tunnel vision by advancing the mistaken notion
`
`that since the CFTC was precluded (in the court’s view) from considering whether
`
`EGCs were contrary to the public interest under Section 5c, the court in turn could
`
`not, or at least would not, reach that analysis. 2024 WL 4164694 *1. However, the
`
`court was not justified in blinding itself to those harms simply because it concluded
`
`(erroneously) that the CFTC had no authority to determine if the EGCs were contrary
`
`to the public interest. That specific legal determination about the authority of the
`
`agency under Section 5c stands entirely apart from the broad and ever-present
`
`authority of federal courts to take into account the consequences of their legal
`
`determinations.
`
`And where a court is interpreting a remedial statute, as here, it is essential that
`
`the court assess the likely policy consequences of its chosen reading of the law and
`
`determine how those consequences square with the Congressional purposes
`
`underlying the law. Here, the district court erred by interpreting a remedial statute
`
`while flatly refusing to consider the law’s overarching objectives and the impact of
`
`its decision on the attainment of those objectives.
`
`
`
`
`
`10
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 19 of 39
`
`
`III. ALLOWING ELECTION GAMBLING CONTRACTS TO TRADE
`THREATENS TO UNDERMINE ELECTION INTEGRITY, HARM
`COUNTLESS INVESTORS, AND BURDEN THE CFTC WITH AN
`INAPPROPRIATE DUTY TO POLICE ELECTIONS.
`
`
`
`A. EGCs will undermine election integrity.
`
`Allowing EGCs to trade is threatening the integrity of our federal elections,
`
`“which are the very linchpin of our democracy.” KalshiEX LLC v. CFTC, No. 24-
`
`5205, 2024 WL 4364204 *6 (D.C. Cir. 2024). This concern was chief among those
`
`set forth in the CFTC’s “public interest” analysis of Kalshi’s contract. CFTC Order
`
`at 19-20. It was also one that the district court could have and should have carefully
`
`assessed in arriving at the best interpretation of the scope of Section 5c, a plainly
`
`remedial statute.
`
`Kalshi’s EGC contracts will undermine our electoral process in a number of
`
`ways. For example, they will incentivize the dissemination of misinformation for
`
`profit, as some bad actors can be expected to assume large positions in the contracts
`
`and then disseminate false or misleading information to skew election outcomes in
`
`favor of their market position. In a separate vein, these contracts will also serve as
`
`direct tools of election interference, as some bad actors will take large positions in
`
`the contracts to convey misleading information about the status of an electoral race,
`
`with the goal of either stimulating or suppressing fundraising, voter turnout, and the
`
`general level of support for a candidate. In short, EGCs will not only incentivize the
`
`use of misinformation to “manipulate” election outcomes in pursuit of winnings on
`
`
`
`
`
`11
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 20 of 39
`
`
`wagers, they will also serve as attractive tools for distorting perceptions about
`
`candidates’ prospects, for political or electoral gains. See, e.g., CFTC Order at 20.
`
`The result will be not only a heightened risk of corrupted elections but further
`
`erosion in the public’s already tenuous confidence in the integrity of those elections.
`
`These threats are being magnified as this litigation unfolds. Once the stay
`
`against EGCs was lifted, Kalshi immediately began offering EGCs and then
`
`proceeded to create dozens of additional political gambling contracts for widespread
`
`public trading. Dan Mangan, Kalshi Expands Trump, Harris Election Bet Options,
`
`Adds
`
`Senate
`
`Races; CFTC Objects, CNBC
`
`(Oct.
`
`9,
`
`2024),
`
`https://www.cnbc.com/2024/10/09/kalshi-expands-election-betting-options-cftc-
`
`complains.html. Pandora’s box was opened. Moreover, alarming reports of possible
`
`election manipulation on another platform offering election wagers have recently
`
`surfaced. Four anonymous accounts, likely under common control, are suddenly
`
`placing huge wagers—to the tune of $30 million— in favor of Trump’s presidential
`
`candidacy, through the offshore platform known as Polymarket. Alexander
`
`Osipovich, supra note 3. While some surmise that these bets may reflect a genuine
`
`sentiment about the odds of a Trump victory and a desire to profit on that belief,
`
`others contend that it is “almost certainly a case of market manipulation.” Slisco,
`
`supra note 3. Still others surmise that this trading surge may be a ploy to create the
`
`misimpression of “momentum” to foster additional political support for Trump. As
`
`
`
`
`
`12
`
`

`

`USCA Case #24-5205 Document #2081637 Filed: 10/23/2024 Page 21 of 39
`
`
`one article explained, it could be someone who wants to “make Trump appear to
`
`have better prospects than the market would otherwise suggest, in the expectation
`
`that this will boost morale and keep donations and volunteer effort flowing.”
`
`Osipovich, supra note 3. Yet more theories have been floated, suggesting it may
`
`constitute trading based on inside information, or even an attempt to lay the
`
`groundwork for claims that the election must have been stolen in the event Trump
`
`ultimately loses. Osipovich, supra