Second Circuit refuses Kalshi and Coinbase interim relief against New York and Connecticut enforcement

The US Court of Appeals for the Second Circuit has turned down requests from Kalshi and Coinbase for temporary protection from state gambling enforcement. In an order dated November 3, a three-judge panel declined to issue injunctions while three separate appeals proceed, covering actions by New York and Connecticut authorities over sports-related event contracts.

Kalshi is contesting enforcement by the New York State Gaming Commission and the Connecticut Department of Consumer Protection. Coinbase is separately challenging action taken by Connecticut Attorney General William Tong. The two-page order gave little reasoning, saying only that the companies had not shown sufficient grounds for interim relief.

At the heart of the dispute is whether prediction market contracts fall under federal derivatives law or state gambling rules. Kalshi and Coinbase argue their sports products are swaps under the Commodity Exchange Act, which places them under the Commodity Futures Trading Commission and prevents states from applying their own gambling laws. New York and Connecticut treat the sports contracts as unlicensed sports betting and say their long-standing authority over gambling covers such activity.

The order does not settle that question. It does not require either company to stop trading or close out existing positions, but both must keep defending their positions without the temporary shield they requested.

The ruling follows earlier setbacks at the trial level, where New York and Connecticut judges rejected Kalshi's attempts to halt state enforcement. New York sued Kalshi in July to stop its sports contracts and seek financial penalties, with potential damages claimed at $36 billion. Connecticut began its own action against Kalshi in August. Coinbase recently disclosed that its prediction market business generates more than $200 million in annualized revenue.

Federal appeals courts have split on the issue. The Third Circuit previously sided with Kalshi in a New Jersey case, while the Sixth and Ninth Circuits have backed state regulators in other disputes. In July, Kalshi agreed to block Nevada residents from its sports, election and entertainment contracts after allegations that it kept offering restricted products despite a court order, with potential penalties of $120,000 per day over geofencing. In February, a federal judge in Tennessee ruled that its sports event contracts were swaps under the Commodity Exchange Act, allowing it to keep operating there.