A voter casts their votes at a polling station in Nashville, Tennessee on Super Tuesday, March 5, 2024.
- A federal appeals court refused to block a lower-court ruling allowing Americans to bet on the outcome of the 2024 congressional elections.
- The appeals court decision rejected an effort by the federal Commodity Futures Trading Commission to prohibit the commodities exchange KalshiEx from offering "Congressional Control Contracts" while the CFTC appealed the lower-court decision giving the green light for such bets.
A federal appeals court in Washington, D.C., cleared the way Wednesday for Americans to bet on the outcome of the 2024 congressional elections — and potentially other federal election contests.
The appeals court in a decision rejected an effort by the Commodity Futures Trading Commission to prohibit the commodities exchange KalshiEx from offering "Congressional Control Contracts" while the federal agency appealed a lower court's ruling that had given a green light for such bets.
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The CFTC argues that the contracts might cast doubt on the integrity of elections.
But the commission "has failed to at this time to demonstrate that it or the public will be irreparably injured" without a stay on the contracts being offered during its appeal, wrote Judge Patricia Millett of the U.S. Appeals Court for the District of Columbia Circuit in its 15-page ruling Wednesday.
Millett, who was part of a three-judge panel considering the case, said the agency could renew its emergency bid to block the contracts pending resolution of the appeal "should substantiating evidence arise."
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There were no dissents on decision in favor of KalshiEx, which offers customers contracts that can hedge the risk of certain events occurring.
The contracts at issue in the case are bets on predictions on which political party will control the Senate and House of Representatives at a future specified date.
But Kalshi's co-founder Tarek Mansour in a social media post touting the ruling suggested the exchange might offer contracts on the outcome of the U.S. presidential election. Kalshi would allow individuals or entities to invest up to $100 million per congressional contract.
The CFTC opposes the contracts because of concerns they could be used by foreign individuals or governments "directly or indirectly to manipulate the election-contract market," despite Kalshi's claim that only U.S. residents would be allowed to invest, the ruling noted.
But Millett wrote, "While the question on the merits is close and difficult, the Commission cannot obtain a stay at this time because it has not demonstrated that it or the public will be irreparably harmed while its appeal is heard."
"That failure is fatal to the Commission's stay request because a showing of irreparable harm is a necessary prerequisite for a stay," the judge wrote.
The CFTC declined to comment on the ruling, but noted that "this is for our request for an emergency stay. Not the appeal itself."
CNBC has requested comment from KalshiEx.
The CFTC had barred KalshiEx from listing its congressional contracts on the exchange, which the commission regulates, on the ground that they would violate the laws of many states that ban gambling on elections.
But Judge Jia Cobb in U.S. District Court in Washington, D.C., ruled last month that the the regulator had erred in finding that KalshiEx's congressional contracts involved gaming or gambling.
Cobb's ruling was in effect for only about eight hours before the D.C. appeals court stayed it at the request of the CFTC.
But KalshiEx had accepted an unknown number of bets on the congressional elections during that time.
That administrative stay was lifted in Wednesday's ruling.
The CFTC rejected Kalshi's application to offer the contracts in September 2023.
The commission, among other things, found that the contracts were unlikely to be used for commercial-risk hedging, and also that they could threaten the integrity of elections by "creating monetary incentives for voters to support particular candidates or incentivizing the spread of misinformation," the appeals court ruling noted.
The CFTC also cited a "special rule" under the Commodity Exchange Act, which allows the commission to review and ban certain types of event contracts if it determines they are contrary to the public interest. The types of activities subject to that ruling including "gaming," as well as terrorism, assassination, war, or activity that is illegal under any federal or state law.
Kalshi sued the CFTC in November challenging the order as arbitrary and capricious.
In her subsequent ruling in the exchange's favor, Judge Cobb found that under the special rule of the Commodity Exchange Act, " 'gaming' must refer to the 'act of playing a game' or playing games for stakes,' " the appeals court decision noted.
"The district court also ruled that the term 'involve' refers to the 'event being offered and traded' under a contract, not the contract itself," the appeals court panel said. "Thus, because the underlying events in the Congressional Control Contracts—'elections, politics, Congress, and party control'—are not themselves unlawful under state law, the contracts did not "involve" 'illegal or unlawful activity.' "
