The opinion resolves requests across three related cases involving Coinbase Financial Markets, KalshiEX, and the United States and CFTC, with the Coalition for Fair Markets and North American Derivatives Exchange participating as intervenors. Defendants include Illinois, Attorney General Kwame Raoul, Gov. JB Pritzker and Illinois Gaming Board officials.
Two Courts, Opposite Readings
Pacold found that contracts on title-game winners likely qualify as “swaps” under the Commodity Exchange Act because the underlying outcomes can have concrete, material financial consequences. But she rejected an unlimited definition: a bet on the color of a sports drink dumped on a coach’s head would not have the requisite consequences.
Applying Seventh Circuit precedent, she concluded that Illinois’s licensing requirements and related criminal provisions likely interfere with federally regulated swap trading. Merely listing a contract on a federally designated exchange, however, was not enough to shield it from state law.
That reasoning contrasts with a Wisconsin federal court decision denying the CFTC a preliminary injunction. Judge William C. Griesbach found the agency had not shown that sports-event contracts likely qualified as swaps. He also concluded that federal permission to offer a product did not guarantee a right to offer it despite state gambling prohibitions.
The Wisconsin case is on appeal to the Seventh Circuit, creating disagreement between district courts within the same appellate circuit. The appeals court’s schedule sets Wisconsin’s brief for Oct. 21 and reply briefs for Nov. 12.
The divide extends beyond those two states. On Sept. 25, the Sixth Circuit upheld the denial of an injunction in Ohio and vacated one in Tennessee, finding Kalshi had not established either swap status or federal preemption. The Ninth Circuit had upheld the dissolution of Kalshi’s Nevada injunction in August, while the Third Circuit upheld an injunction protecting Kalshi in New Jersey.
The jurisdictional conflict has already reached executed trades: as The Defiant previously reported, the CFTC ordered Kalshi in July to honor trades a Michigan state court had directed it to cancel.
Paul Grewal, Coinbase’s former chief legal officer, called for Supreme Court intervention after the Illinois ruling: “The lower courts aren’t buying what each other is selling. This is precisely why we have a Supreme Court. Time for SCOTUS to step up.”
In Illinois, the next deadline is Oct. 8, when the parties must propose a schedule for further briefing on fees. Pacold left open whether those charges merely increase trading costs or are severe enough to effectively regulate the market.
