A federal appeals court has once again opened the door to large-scale wagering on the outcome of U.S. elections after the judges on Wednesday rejected the government’s claims that betting could undercut voting and taint the results.
Judge Patricia Millett, writing for the unanimous three-judge panel, said the big legal issues at stake are not yet settled. But she said as of now, the Commodity Futures Trading Commission hasn’t proved that the betting market operated by Kalshi, a financial exchange platform, is dangerous enough to order an immediate halt.
“Ensuring the integrity of elections and avoiding improper interference and misinformation are undoubtedly paramount public interests, and a substantiated risk of distorting the electoral process would amount to irreparable harm,” Judge Millett wrote. “The problem is that the Commission has given this court no concrete basis to conclude that event contracts would likely be a vehicle for such harms.”
Kalshi wants to let people place bets on who will end up controlling each chamber of Congress after the November election.
It won an initial ruling in a district court last month and had its election market open for about eight hours, before the U.S. Circuit Court of Appeals for the District of Columbia shut it down in response to the CFTC’s emergency request.
Wednesday’s order erases that shutdown.
The case gets at the nature of elections.
The CFTC said allowing betting on election outcomes opens the door to all kinds of mischief, starting with perverse financial incentives for voters to cast their ballots and ending with disinformation campaigns or foreign government attempts to manipulate the vote.
The commission pointed to one past instance of someone releasing a fake poll to try to alter perceptions of how a Senate race would play out.
Judge Millett, though, said the evidence was scant for actual manipulation.
She rejected the argument about perverting voters’ interests, saying many voters already cast ballots with their financial picture in mind and the CFTC didn’t prove why Kalshi’s market would be vastly different.
The CFTC was particularly worried about the chances for market manipulation based on fake news or polling. Alternatively, the CFTC said it worried that people might make bets to create “misinformation” about the direction a race is headed.
In other words, heavy betting on one outcome could convince others that the outcome was more likely than other sources such as polling would suggest.
Judge Millett said that was possible, but she said it’s also possible that the market may be more attuned to the actual situation than polling.
The judge also said the commission has other tools at its disposal. It could go through the full regulatory process to create a rule banning election outcome betting, and it has the power of subpoenas and other investigative tactics to try to sniff out market manipulation.
Kalshi has not offered betting on the outcome of individual races, including the presidential election, though foreign online betting markets do allow those kinds of bets.
Americans are not supposed to be betting on those foreign exchanges, though some still do with the assistance of a Virtual Private Network or a foreign cryptocurrency account to hide their U.S. residency.
Sen. Jeff Merkley, Oregon Democrat, derided the new decision as a threat to elections.
“Effective immediately, huge Wall Street firms can open trading to the wealthy so they can bet millions on which party controls the House or Senate. And those folks can then spend big in dark money to attack candidates to protect their bets,” he said.
While the ruling allows Kalshi to reopen its betting market, it leaves open the bigger questions of the CFTC’s regulatory powers.
Betting markets have exploded in recent years, with companies offering “event contracts” on various issues and questions.
Besides the sporting elements, Kalshi said it offers people a way to hedge risks.
It hypothesized about betting on a hurricane season. A hotel operator might bet in favor of a rough season to offset losses from fewer tourists, while a construction company might bet in favor of a weaker season to offset a lower rate of rebuilding work if hurricanes don’t materialize.
Under the law, the CFTC can block trading markets involving terrorism, assassination, war, other illegal activities or “gaming.” The CFTC said betting on politics falls under gaming, and it issued an order last year blocking Kalshi from opening its election market.
The district judge rejected that argument.
Judge Millett said the legal issues are “close and difficult.”
Initial betting last month made the Republicans the favorites to win the Senate, and suggested Democrats were favored to win the House. That would be a reversal from the current control in both chambers.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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