A financial exchange platform opened the first American-based betting market on U.S. elections Thursday after a federal judge rejected regulators’ attempts to shut it down.
It marked the first time that Americans were legally able to bet on election outcomes on a U.S.-based platform — a move critics said threatened the integrity of elections.
Judge Jia Cobb ruled that the Commodity Futures Trading Commission overstepped its bounds when it tried to block Kalshi from creating the elections market. Her decision, which she reached last week and issued in writing on Thursday, cleared the way for Kalshi to move ahead.
The CFTC quickly ran to a federal appeals court which issued a short-term stay of Judge Cobb’s ruling Thursday night, although trading was still active as of 9 p.m.
The case tests the limits of the CFTC’s regulatory powers and the rapid expansion of betting markets, which now allow trades on all sorts of issues from economics to popular entertainment to elections.
“Today marks the first trade made on regulated election markets in nearly a century,” said Tarek Mansour, a co-founder of Kalshi, after his firm kicked off trading.
The CFTC says allowing Americans to bet on the elections could encourage the spread of misinformation, the organization of voting blocs to sway the outcome or other meddling in the process. It issued an order last year blocking Kalshi from moving forward with its plans.
But Judge Cobb said as long as there’s no betting on illegal activity or gambling, the CFTC has no power to intervene.
“Kalshi’s contracts do not involve unlawful activity or gaming. They involve elections, which are neither,” she wrote.
The CFTC had asked her to delay her ruling to give it time to appeal but she declined.
That allowed Kalshi to open up trading as the CFTC rushed to the U.S. Circuit Court of Appeals for the District of Columbia to try to get a halt.
A three-judge panel delivered the halt in an unsigned order just before 8:30 p.m.
Outfits outside the U.S. have offered betting on American politics for decades, but Kalshi becomes the first to legally offer Americans the chance to bet in the U.S.
Initial betting 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.
Kalshi said it would judge the winners based on the party of the House speaker and the Senate president pro tempore as of Feb. 1. Bets will be paid out that day.
Kalshi said it will accept trades up to $100 million. The CFTC said that kind of money underscored the potential for election meddling.
“With Americans’ confidence in elections at an all-time low, now is not the time to plunge into election gambling without reasoned review,” the agency argued to the appeals court Thursday.
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.
The CFTC said betting on politics involves “gaming,” which would give the agency the power to conduct a special review.
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.
Judge Cobb, a Biden appointee to the U.S. District Court for the District of Columbia, rejected the CFTC’s gaming argument.
“Kalshi’s event contracts ask buyers to take a yes/no position on whether a chamber of Congress will be controlled by a specific party in a given term. That question involves (relates to, entails, has as its essential feature, or any other iteration of the word) elections, politics, Congress, and party control; but nothing that any Party to this litigation has identified as illegal or unlawful activity. Nor does that question bear any relation to any game — played for stakes or otherwise,” she wrote.
Sen. Jeff Merkley, Oregon Democrat, called the ruling “stunningly reckless.”
“Due to this appalling court decision, as of today, billionaires and large corporations can now bet millions on which party controls the House or Senate and then spend big to destroy candidates to protect their bets,” he said.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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