Federal judge pauses Connecticut crackdown on prediction market operator Kalshi

A federal judge has ordered Connecticut regulators to pause enforcement of a cease-and-desist directive against prediction market operator Kalshi, giving the company temporary relief as a broader legal battle over state versus federal oversight of event-contract trading unfolds.

The order halts the state’s enforcement efforts until a February 12 hearing in U.S. District Court, where the case is expected to offer an early indication of whether federal commodities law preempts state gambling rules. The pause follows Kalshi’s lawsuit against the Connecticut Department of Consumer Protection (DCP), which the court formally acknowledged by approving a joint stipulation setting the litigation schedule.

Under the timetable, the DCP must file its response by January 9, with Kalshi’s reply due Jan. 30 before the Feb. 12 hearing.

Connecticut issued cease-and-desist letters earlier in December to Kalshi, Robinhood and Crypto.com, ordering them to stop offering sports-related prediction markets in the state. Regulators said the firms were effectively providing unlicensed sports betting. DCP Commissioner Bryan Cafferelli, Gaming Director Kristofer Gilman and Attorney General William Tong are named defendants.

Kalshi argues the state has no authority to restrict its markets because its contracts fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). The company said the C&D order arrived unexpectedly after what it believed were constructive discussions with regulators. The letter’s demand for immediate compliance was “sudden and unexpected… [and] left Kalshi with no choice but to file the enclosed complaint… seeking declaratory and injunctive relief,” the company’s counsel wrote.

Without a preliminary injunction, Kalshi says it would face significant harm.

Connecticut, meanwhile, has outlined seven risks it says make prediction markets illegal and unsafe, including the absence of technical standards, integrity controls and dispute-resolution mechanisms, and the offering of contracts on known-outcome events. Regulators also raised concerns about advertising to self-excluded individuals and allowing users aged 18 and older when state sports betting requires participants to be at least 21.

The Connecticut case comes amid mounting scrutiny of prediction markets across the U.S. Massachusetts has filed a separate action seeking to block Kalshi’s sports-based markets, and at least nine jurisdictions have issued cease-and-desist orders alleging the company is operating an unlicensed sportsbook. Kalshi also suffered a setback in Nevada, where a federal judge ruled the firm must comply with state gaming regulations because sports-contest outcomes do not qualify as “events” under federal commodities law.

The February hearing is expected to test the boundaries between federal financial regulation and state gambling authority as prediction markets face increasing attention nationwide.