A federal judge in Tennessee has temporarily blocked state regulators from taking action against the prediction market platform Kalshi, giving the company a reprieve while the legal battle unfolds.
Key Points
The court has halted Tennessee regulators from enforcing a cease-and-desist order against Kalshi.
The judge found that Kalshi would face serious harm if the order were enforced and is likely to succeed in arguing that federal law, not state law, governs its platform.
The case highlights the growing tension between state gambling regulations and federal oversight of prediction markets.
On Monday, U.S. District Judge Aleta Trauger granted Kalshi’s request for a preliminary injunction and temporary restraining order against the Tennessee Sports Wagering Council and the state attorney general. This ruling prevents the state from enforcing its recent cease-and-desist order while the case continues.
Why the Judge Intervened
Judge Trauger said that allowing Tennessee’s enforcement actions to proceed would cause Kalshi “irreparable injury and loss.” She also noted that the company is likely to succeed on the merits of its claims, and that its rights would probably be violated without court intervention.
The dispute began when the Tennessee Sports Wagering Council sent cease-and-desist letters to Kalshi, Polymarket, and Crypto.com, ordering them to stop offering sports event contracts in the state. Regulators claimed these platforms were offering unlicensed sports wagering products and directed them to cancel existing contracts and refund Tennessee users by January 31. The letters warned of civil penalties of up to $25,000 per violation.
Kalshi quickly challenged the order in federal court, suing the council, its leadership, and the state attorney general. The company argued that Tennessee overstepped its authority by trying to regulate a federally overseen derivatives exchange.
Kalshi’s Argument
Kalshi maintains that it operates under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), which regulates designated contract markets. According to the company, state intervention conflicts with the federal framework established by Congress for derivatives trading. In its complaint, Kalshi argued that “Tennessee’s intent to regulate Kalshi intrudes upon the federal system for overseeing derivatives markets,” framing the case as a clash between state gambling laws and federal commodities regulation.
Similar legal battles are playing out across the U.S. Courts in Nevada and New Jersey have granted temporary relief, blocking state enforcement while litigation continues, though a federal judge in Maryland declined to issue a similar injunction.
State Concerns Over Prediction Markets
State opposition to prediction markets has been growing for months. In 2025, the Tennessee Sports Wagering Council urged the CFTC to ban sports event contracts, arguing that they bypass safeguards like age verification, responsible gaming rules, and anti-money laundering measures.
Meanwhile, a new bill aimed at limiting interactions between government officials and prediction markets has gained support from over 30 Democrats in the U.S. House, including former Speaker Nancy Pelosi. The push for new regulations was partly inspired by a controversial Polymarket bet that began at $32,000 and eventually grew to over $400,000 shortly before the unexpected detention of Venezuelan President Nicolás Maduro.
The proposed legislation, called the Public Integrity in Financial Prediction Markets Act of 2026, was introduced by New York Representative Ritchie Torres.
