Twenty counts. Not cease-and-desists. Not civil complaints. Criminal charges.

Arizona Attorney General Kris Mayes filed a 20-count misdemeanor complaint in Maricopa County on Monday against KalshiEx LLC and Kalshi Trading LLC, accusing the New York-based prediction market of running an illegal gambling operation and accepting wagers on Arizona elections. It is the first criminal prosecution of a prediction market in the United States.

From Civil Suits to a Criminal Docket

Until now, the legal war between prediction markets and state regulators played out in civil court. More than 20 civil lawsuits are pending against Kalshi across roughly a dozen states. The company has preemptively sued Arizona, Iowa, and Utah in federal court, arguing that its status as a CFTC-registered exchange puts it beyond state reach.

Arizona decided civil litigation wasn’t enough. Instead of filing another complaint, Mayes went criminal — charging Kalshi with class 2 misdemeanors that can carry jail time, fines, or probation. Sixteen counts relate to unlicensed sports wagering, each carrying a maximum $20,000 fine. Four target election bets — contracts on the 2028 presidential race, the 2026 Arizona gubernatorial race, the Republican gubernatorial primary, and the secretary of state contest — with fines up to $10,000 each. Arizona law doesn’t merely regulate election wagering. It bans it outright.

“Kalshi may brand itself as a ‘prediction market,’ but what it’s actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law,” Mayes said. “No company gets to decide for itself which laws to follow.”

Follow the Money

The scale of what Arizona is targeting is not trivial. Kalshi cleared $43.1 billion in trading volume in 2025, with more than 90% tied to sports contracts, according to industry data. The platform handles billions of dollars in bets weekly. Users wager on everything from NFL outcomes and individual player performance to Federal Reserve rate decisions and whether the SAVE Act will become law.

The complaint also flags proposition bets on sporting events — the kind of granular, per-play wagers that licensed sportsbooks like FanDuel and DraftKings offer only after negotiating compliance in each of the 39 states where sports betting is legal. Kalshi skipped that process entirely, launching nationally on the strength of its federal derivatives license and treating state gaming regulators as an obstacle to route around rather than an authority to satisfy.

That strategy worked until it didn’t.

The Federal Preemption Gambit

Kalshi’s core legal argument is straightforward: the Commodity Exchange Act gives the CFTC exclusive jurisdiction over event contracts traded on registered exchanges, and state gambling laws simply don’t apply. The company sued Arizona on March 12 — five days before the criminal charges landed — seeking a federal court order to block state enforcement.

The CFTC appears sympathetic. Chair Michael Selig called the charges “a jurisdictional dispute and entirely inappropriate as a criminal prosecution,” adding that the commission is “watching this closely and evaluating its options.” The Trump administration has signaled broad support for prediction markets, with Selig’s pro-market posture marking a sharp departure from the Biden-era CFTC’s skepticism.

Mayes framed the preemptive lawsuit as evidence of bad faith: “Rather than work within the legal frameworks that states like Arizona have established, Kalshi is running to federal court to try to avoid accountability.”

A Kalshi spokesperson called the charges “seriously flawed” and “meritless,” arguing that “a state can file criminal charges on paper thin arguments.”

What Comes Next

The financial penalties are modest — a maximum of $360,000 if every count draws the top fine. For a company processing billions in monthly volume, that’s a rounding error.

The real stakes are precedent. If Arizona’s criminal theory holds, other states have a template. The roughly dozen states already in civil litigation with Kalshi could escalate. And the election-betting counts raise a question the federal preemption argument may not answer: even if the Commodity Exchange Act covers derivatives trading, does it shield a platform that lets Arizona residents bet on who will be their next governor?

Kalshi built a $43 billion business on the bet that federal regulation would preempt state law. Arizona just raised the stakes.

Sources