CFTC proposed rule reaches Supreme Court docket as circuit split widens

In August, a federal judge in Utah ruled that the state's gambling laws are not preempted by federal commodities law. The Tenth Circuit declined to shield Kalshi while it appeals that decision. Now Utah's attorney general has filed suit in state court seeking between $30.6 million and $61.2 million in fees Kalshi allegedly collected from more than 32,000 Utah residents — and has named Susquehanna International Group as a co-defendant alongside the company itself.

That last detail is the one the reporting has not fully connected yet.

Market-maker liability is a different exposure than operator liability, and the Utah complaint's inclusion of Susquehanna creates a precedent question that reaches beyond this case. If a firm providing liquidity on a federally designated contract market can be named in a state enforcement action for doing so, the structural argument for federal preemption becomes a practical problem for every institution touching these contracts — not just the platforms. Susquehanna will fight that characterization, and it should. But the fight is now in a Utah state court, working from a record that already includes one federal judge's conclusion that the Commodity Exchange Act does not displace Utah's gambling prohibition.

Meanwhile, the Third Circuit has held that sports event contracts are swaps within the CFTC's exclusive jurisdiction. The Sixth Circuit has held that even if the contracts are swaps, state gaming laws would likely survive preemption anyway. The Ninth Circuit has suggested the contracts may not be swaps at all. Kalshi's brief to the Supreme Court is due November 9. New Jersey filed the petition seeking certiorari, supported by a bipartisan coalition of state attorneys general, and the CFTC has issued a proposed rule that would expressly define these contracts as swaps — a rulemaking that would, if finalized, hand Kalshi the statutory footing it needs but cannot yet stand on.

The consensus read is that the Supreme Court's ultimate resolution probably favors federal jurisdiction. I think that framing understates how much damage accumulates before the Court acts. I have watched enforcement actions move faster than appellate timelines before, and the settlements they produce do not wait for legal clarity — they set terms in the uncertainty. Utah's complaint is structured to do exactly that: it does not ask Kalshi to stop operating nationally, it asks a state court to impose disgorgement of profits already collected. That is a claim a state court can adjudicate now, under existing state law, without resolving the preemption question at all.

Kalshi's response — that it answers to federal law and no single state should hold veto power over a national derivatives market — is legally coherent and may ultimately prevail. But it is not a defense to the disgorgement claim on the schedule Utah has chosen. The company has to litigate two tracks simultaneously: the Tenth Circuit appeal on the preemption question and the state court proceeding on the money.

The relevant legal standard is whether Utah's claim sounds in state law that is independently enforceable regardless of the federal swap classification — which is precisely what the Sixth Circuit found plausible, and precisely what the Third Circuit foreclosed. Until one of those interpretations controls, every state with a prohibition and a motivated attorney general has the same option Derek Brown just exercised.