A federal judge in the United States has denied a request from prediction market operator Kalshi to suspend Arizona’s criminal prosecution, marking a significant move in an escalating legal battle regarding the classification of event-based trading platforms.

The court dismissed Kalshi’s plea to obstruct the proceedings and refrained from determining whether federal law supersedes Arizona’s gambling regulations. U.S. District Judge Michael Liburdi stated on Wednesday that it is premature to decide on that matter.

The Arizona Attorney General’s Office has filed 20 misdemeanor charges against Kalshi, claiming the platform accepted wagers on political events, college sports outcomes, and individual athlete performances.

According to state law, running an unlicensed betting business and wagering on elections is illegal, making this case the first instance of criminal charges being leveled against the platform by a state.

This conflict highlights a larger debate over whether prediction markets should be categorized as gambling enterprises. Arizona argues that Kalshi operates an unlawful betting operation and has positioned itself as a venue for sports and election betting, accusing it of contravening state laws.

Kalshi argues that it is a financial marketplace, not a gambling entity, asserting that users engage in trading contracts with one another instead of betting against the operator. The platform facilitates the buying and selling of “Yes” or “No” contracts linked to specific event outcomes, which they refer to as “swaps.”

In addition to the criminal case, Kalshi is pursuing civil litigation in federal court, claiming it should only be regulated by the U.S. Commodity Futures Trading Commission. The company has cautioned that the Arizona legal action could jeopardize its future, diminish trust in its platform’s integrity, and lead to other complications for its operations.

The Arizona case is part of a broader legal struggle across multiple states. Kalshi has initiated lawsuits against Arizona, Utah, and Iowa to prevent state-level enforcement actions. Additionally, other states have initiated their own actions against the platform.

Judicial outcomes have been inconsistent thus far. Courts in Nevada and Massachusetts have supported states in their attempts to limit prediction market activities, while decisions in New Jersey and Tennessee have favored Kalshi.

The legal dispute has attracted federal attention, with lawsuits filed against Connecticut, Arizona, and Illinois challenging their regulations on prediction market operators. The administration under President Donald Trump has indicated support for such platforms.

The matter also has political and commercial implications. The eldest son of Donald Trump acts as an advisor to Kalshi and Polymarket, while also investing in the latter. Trump’s social media platform is preparing to launch a cryptocurrency-based prediction market named Truth Predict.