Judge Says CFTC Order for Kalshi Gave Appearance of Collusion

A federal judge said a CFTC order directing Kalshi to keep operating in New York gave the appearance of collusion between the regulator and the company, sharpening a dispute over sports event contracts. U.S. District Judge Colleen McMahon delivered the criticism on Nov. 10 in a ruling that simultaneously denied prediction-market operator Novig's request for a preliminary injunction against New York State. The finding at the core of the decision leaves New York free to apply its gambling laws to Novig's sports contracts.

McMahon found that Novig's sports event contracts were likely not swaps under the Commodity Exchange Act. That conclusion matters. If the contracts are not swaps, federal derivatives oversight does not displace state gambling authority, and New York's enforcement window stays open. Novig filed a notice of appeal with the Second Circuit several hours after the ruling, a fast turnaround that signals the company intends to test the legal question at the appellate level rather than comply quietly.

The dispute began as Novig's challenge to New York's application of state gambling law to its products. The CFTC order McMahon criticized, however, concerned a separate matter: Kalshi's effort to keep operating in the state after New York sued. Two companies, one state, and one regulator now sit at the center of a fight that pits federal derivatives oversight against state gambling authority.

What did the judge say about the CFTC?

McMahon did not limit her analysis to Novig. She criticized the CFTC's rules for treating sports and other event contracts as swaps while simultaneously excluding sports betting and casino wagers from that category. She called the positions internally inconsistent. The criticism cuts at the regulatory architecture itself, not merely at one enforcement decision, and it invites scrutiny of how the agency drew its definitional lines in the first place.

Her remark about the appearance of collusion concerns the CFTC order directing Kalshi to keep operating after New York sued. An instruction from a federal regulator that a company may continue a contested activity, issued mid-litigation, can look to a court like coordination rather than neutral oversight. McMahon flagged that perception. She did not, on the record available, find actual collusion — a distinction worth keeping in view before reading the comment as a finding of misconduct.

What changes for the market?

For Novig, the immediate operational consequence is unfavorable. New York can apply its gambling laws to the company's sports contracts while the appeal proceeds. Whether state regulators move quickly, and whether Novig alters or suspends its New York product line, remains unstated in the ruling.

For Kalshi, the judge's criticism of the CFTC order adds a reputational and legal complication to its separate effort to keep operating in the state. A federal judge describing a regulator's directive as having the appearance of collusion gives New York additional argumentative material, even though the Novig decision does not itself resolve Kalshi's case.

For the CFTC, the criticism lands on its rulebook. A federal judge calling the agency's swap-definition framework internally inconsistent pressures the commission to clarify which event contracts fall within federal jurisdiction and which belong to state gambling regulators. No such clarification has been announced.

In plain terms: one judge has questioned both the regulator's rules and its conduct, and the appellate courts will now decide who governs sports event contracts.