Tennessee Judge Temporarily Halts State Action Against Prediction Market Kalshi

A federal judge in Tennessee has placed a temporary hold on state regulators taking action against Kalshi.

Key Takeaways

A federal judge has temporarily blocked Tennessee regulators from enforcing a cease-and-desist order against Kalshi.
The court determined that Kalshi would suffer irreparable harm and is likely to win its argument for federal jurisdiction over its platform.
This case highlights the increasing tension between state gambling laws and federal oversight of prediction markets.

In an order issued on Monday, US District Judge Aleta Trauger approved Kalshi’s request for a preliminary injunction and a temporary restraining order against the Tennessee Sports Wagering Council and the state's attorney general.

This ruling stops state regulators from enforcing a recent cease-and-desist order while the legal proceedings continue.

Tennessee Judge Pauses State Case Against Prediction Market Kalshi

Judge Highlights Potential Irreparable Harm to Kalshi

Judge Trauger indicated that Kalshi would face “irreparable injury and loss” if the state continued its actions, finding that the company was likely to prevail based on the merits of its claims.

She expressed that Kalshi’s rights would probably be violated without court intervention.

The situation escalated on Friday when the Tennessee Sports Wagering Council dispatched cease-and-desist letters to Kalshi, Polymarket, and Crypto.com, demanding they stop offering sports event contracts within the state.

Regulators charged these platforms with offering unlicensed sports wagering products and instructed them to void current contracts and refund Tennessee users by January 31.

The letters also warned of civil penalties of up to $25,000 for each violation.

In response, Kalshi acted swiftly to contest the order in court, initiating a lawsuit against the council, its leadership, and the state attorney general.

The company argued that Tennessee had exceeded its authority by attempting to impose regulations on a federally regulated derivatives exchange.

Kalshi maintains that it functions under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), which oversees designated contract markets.

According to Kalshi, intervention at the state level conflicts with the federal regulatory framework set by Congress for derivatives trading.

“Tennessee’s intention to regulate Kalshi infringes on the federal system for overseeing derivatives markets,” the company stated in its complaint, framing the dispute as a conflict between state gambling laws and federal commodities regulation.

This lawsuit mirrors other legal challenges occurring throughout the US. Kalshi has taken action against various state regulators attempting to restrict prediction markets, with varied outcomes.

Courts in Nevada and New Jersey have granted temporary relief, blocking state actions while litigation is pending, while a federal judge in Maryland opted against issuing a similar injunction.

Growing State Concerns Over Prediction Markets

State opposition to prediction markets has been rising steadily over recent months.

In 2025, the Sports Wagering Council urged the CFTC to prohibit sports event contracts, claiming such products circumvent state safeguards such as age verification, responsible gaming practices, and anti-money laundering measures.

Reportedly, a new piece of legislation aimed at limiting interactions between government officials and prediction markets has garnered support from over 30 Democrats in the US House of Representatives, including former Speaker Nancy Pelosi.

The impetus for the new restrictions arises from a controversial bet made on Polymarket, which started at $32,000 but surged to over $400,000 shortly before the unexpected detainment of Venezuelan President Nicolás Maduro.

The proposed legislation, known as the Public Integrity in Financial Prediction Markets Act of 2026, is sponsored by New York Representative Ritchie Torres.