CFTC's own brief now shapes the Supreme Court's preemption question

When Justin Wales, Crypto.com's chief legal officer, said Friday that the CFTC "supports the industry's effort to obtain clarity through the judicial process," he was not speaking loosely. The Commission has filed in this litigation. That is the detail that changes the posture of everything coming next.

The Ninth Circuit ruled unanimously that sports-event contracts are not swaps. That ruling means the Commodity Exchange Act does not preempt state gaming regulation — and Nevada's enforcement authority over Kalshi's and Crypto.com's contracts stands. The Third Circuit reached the opposite conclusion in May, holding 2-1 that the same contracts are financial instruments under exclusive federal jurisdiction, and that New Jersey's cease-and-desist had no force against them. Both decisions are now live. One federal appellate court says these are swaps. Another says they are wagers. The Supreme Court has not yet agreed to hear the case, but New Jersey has petitioned for certiorari, Robinhood and Crypto.com filed their own petition Friday, and Kalshi is asking the Ninth Circuit for an eleven-judge en banc rehearing while it waits.

What I have not seen discussed clearly is what the CFTC's posture actually costs the agency regardless of outcome. If the Court grants certiorari and sides with the Ninth Circuit, the Commission loses the exclusive-jurisdiction argument it has staked its rulemaking authority on. If it sides with the Third Circuit, the Commission inherits the enforcement burden across a contract category that has already drawn three open investigations and a growing list of state cease-and-desist orders the agency will now be obligated to police instead. Neither result is clean for CFTC. The Commission chose this position. The litigation is past the point where it can be managed from the sidelines.

The en banc petition is the more interesting near-term event. An eleven-judge Ninth Circuit panel rehearing a unanimous three-judge decision is not a routine procedural step — it signals that the company believes the panel's reasoning contains a flaw serious enough to attract dissent from the broader court. Kalshi's brief identified what it called internally inconsistent reasoning that conflicts with the plain text of the CEA. That is a precise claim. If even two or three judges on the en banc panel find that the panel improperly classified these instruments without applying the statutory swap definition, the circuit split deepens before the Supreme Court has said a word.

Judge Roth's dissent in the Third Circuit is the text that preemption skeptics will cite at every stage. She wrote that sports-event contracts are indistinguishable from traditional sports wagers. The majority disagreed, but a 2-1 ruling is not a confident one. At the Supreme Court, that dissent is an invitation.

The governing legal standard under Dodd-Frank is whether a contract qualifies as a swap under 7 U.S.C. § 1a(47) — a definition that turns on whether the instrument transfers risk of an event associated with a financial, commercial, or economic consequence. The Ninth Circuit held that a sporting outcome does not qualify. Whether the Supreme Court reads that exclusion as settled or as an open textual question is what every platform with suspended contracts is waiting to find out.