Kalshi’s Failed Attempt to Promote Gambling on Congressional Elections Is Now Playing out in Court

• KalshiEx LLC (Kalshi) wants to offer trading in a new derivatives contract that would allow gambling on the outcome of Congressional elections (referred to as the “Congressional Control Contract”).
• On June 12, 2023, Kalshi filed a certification with the Commodity Futures Trading Commission (CFTC) in its effort to list its Congressional Control Contract for trading. However, on September 22, 2023, the CFTC issued a thorough and well-reasoned order prohibiting the listing of the contract.  On November 1, 2023, Kalshi filed a challenge to the CFTC’s order in the U.S. District Court for the District of Columbia.  See KalshiEx LLC v. CFTC, No. 23-cv-3257 (D.D.C.).
• Better Markets has been a leading voice in opposing this event contract (see materials linked below), and it plans to file a “friend of the court” or “amicus curiae” brief in support of the CFTC’s rejection of the contract. In our view, democracy and elections are foundational principles for the country and are not appropriate subjects for gambling and betting.  Just as we would not allow traders to place bets on when or where they believe the next school shooting will occur, so too must we protect our elections by refusing to allow gambling on our democratic process. In addition, gambling on elections would be susceptible to manipulation and could incentivize people to engage in improper if not illegal conduct that could raise concerns about the integrity of the electoral process.
• It is important for the public, policymakers, and members of the media to understand the significant threat that this contract would pose to the public interest if it were ultimately approved. Kalshi’s lawsuit lacks merit and the court should reject its claims for relief and uphold the CFTC’s decision.

WHY IT MATTERS:  Kalshi’s Contract Poses a Serious Threat to the Public Interest

• Kalshi’s complaint alleges that the CFTC’s denial exceeded the agency’s statutory authority under the Commodity Exchange Act (CEA) and was arbitrary and capricious under the Administrative Procedure Act (APA). In reality, just the opposite is true.  The CFTC acted well within its authority, properly applied the law, and correctly concluded that this contract would harm the public interest.
• As explained in the CFTC’s order, and based upon the explicit provisions of the CEA:
  • The contract would not perform legitimate hedging or price discovery functions, which are the core purposes of the derivatives markets.
  • It would involve gaming, as well as activity that is unlawful under State law, triggering two independent grounds in the CEA for public interest scrutiny and denial.
  • It would harm the public interest, as it would threaten election integrity, incentivize schemes to manipulate election outcomes, and call upon the CFTC to assume an inappropriate role in overseeing the electoral process. Investors also stand to lose given the high level of risk associated with the contract.

WHAT’S NEXT:  Briefing in the Court Case Is Just Getting Underway

• Kalshi filed its opening brief in support of its motion for summary judgement on January 25, 2024.
• The CFTC’s brief is due on February 26, 2024, and Better Markets will be filing an amicus brief on March 4, 2024, offering legal and policy arguments in support of the CFTC’s denial of Kalshi’s attempt to make these gambling contracts on Congressional elections available for public trading.

ADDITIONAL RESOURCES

Better Markets has been heavily involved in this matter since it first surfaced, and we have a dedicated webpage laying out our extensive advocacy on this important issue: https://bettermarkets.org/analysis/cftc-must-reject-proposal-to-allow-gambling-on-u-s-elections/