CFTC Acting Chair Pham Gives Kalshi Hope for Election Contracts

Election event contracts offered by platforms like Kalshi Inc. stand to receive the Commodity Futures Trading Commission’s blessing under new acting Chairman Caroline Pham, who as a dissenting commissioner called for the agency to regulate political contract markets.

Kalshi faced off against the CFTC at a hearing before a federal appeals court this month, arguing the regulator exceeded its authority by cracking down on election bets under Biden-era Chairman Rostin Behnam. Kalshi sparked the litigation ahead of the 2024 presidential election, before its election-themed derivative contracts accurately predicted President Donald Trump would win a second term.

CFTC rule-writers and enforcers are grappling with whether contracts allowing investors to bet on events ranging from the Super Bowl to the fate of the UnitedHealth Group Inc. CEO’s alleged assassin are permitted under the agency’s policies.

Tapped by Trump on Jan. 20 to lead the CFTC as acting chair, Pham is now in a position to drop the agency’s case against Kalshi and green-light regulated political event contracts, preempting an upcoming decision from the US Court of Appeals for the DC Circuit.

“Instead of thoughtfully considering how to effectively regulate these markets while fostering innovation, the Event Contracts Proposal ties itself in knots over the bounds of gaming, which Congress has neither asked nor directed the Commission to regulate,” she said in a dissenting statement in May 2024.

Rather than deciding whether election event contracts are a form of betting or gaming outside the CFTC’s purview, Pham in her new role will likely lean on her staff to end the legal wrangling with Kalshi and pursue rulemaking that encompasses political markets, according to former CFTC officials and agency-focused lawyers.

“The CFTC’s fight against Kalshi has a shelf life at this point, so the question is not if the CFTC will abandon that fight, it’s when,” said Renato Mariotti, a partner at Paul Hastings LLP and a former federal prosecutor handling securities and commodities cases.

The CFTC didn’t respond to a request for comment. A Kalshi spokeswoman declined to comment

Kalshi’s Gamble

The CFTC rejected Kalshi’s initial bid to offer election wagers on its platform in September 2023, with Behnam raising concerns that the agency would be tasked with policing elections.

After the CFTC proposed rulemaking in May 2024, defining election event contracts as gaming and placing them squarely under the jurisdiction of state regulators, Pham dissented by highlighting the “vast gray area for exchanges” that should instead be effectively regulated.

A federal district judge in Washington blocked the CFTC’s order last year, allowing Kalshi to offer political event contracts ahead of the November election. The agency then appealed that ruling, convincing the DC Circuit to put an immediate freeze on the exchange’s election event contracts pending the outcome of the case, but the three-judge panel lifted the stay in October.

During oral argument before the appellate panel on Jan. 17, Judge Robert Wilkins said he felt “like a dog chasing its tail” trying to understand the statute in question.

The lingering uncertainty gives Pham a chance to clarify the agency’s stance once and for all.

“There’s good basis for moving forward, and maybe she’s thought about that,” said Sharon Brown-Hruska, the founder of Hruska Economics who served as acting chairman and commissioner at the CFTC under former President George W. Bush. “I would say that this Commission is more split on this question of event contracts than in the past and that’s going to make it difficult for a serious change of course, which will take time.”

The CFTC could offer a roadmap for Kalshi and other entrants like Robinhood Markets Inc. and Polymarket listing event contracts, even without a unified front to usher in new rulemaking.

“The Kalshi litigation is very important, and what the CFTC might want is the ability to put out some guidance around what it expects when listing event contracts,” said Ryne Miller, the chair of Lowenstein Sandler LLP’s commodities, futures, and derivatives practice and a former legal counsel to Gary Gensler when he led the CFTC.

Trump-era Variables

Kalshi has taken a direct approach to operating its political contracts market by seeking CFTC oversight, which could help it prevail either in court or by currying favor with strategic figures in the new administration.

Donald Trump Jr. joined Kalshi as a strategic adviser, with the company’s announcement this month citing his involvement as a step toward making event trading as commonplace and influential as traditional markets.

“I immediately knew I had to contribute to their mission,” Trump Jr. said in a post on X announcing his role at the company. “The Kalshi team has worked hard, sued the Biden administration, and achieved the impossible feat of becoming the first and only legal prediction market in the US.”

Kalshi also announced its expansion into “legal sports markets” on Jan. 23, just weeks ahead of the Super Bowl, with Kalshi Co-Founder and CEO Tarek Mansour noting in a post on X that the move came “on the heels of our explosive growth.”

“There has been a paradigm shift and an Overton Window shift, where the possibility of a broader group of event contracts is here,” Miller said. “In this administration, you’re going to see an appetite to get this right, and it no longer means saying no.”

The case is KalshiEx LLC v. CFTC, D.C. Cir., No. 24-05205.