PHOENIX (AP) — A federal judge on Friday temporarily barred Arizona from enforcing its gambling laws against predictive market operators and put the brakes on a criminal wagering case that the state has filed against Kalshi.

U.S. District Judge Michael Liburdi’s ruling means a Monday arraignment hearing for Kalshi has been called off. State prosecutors allege Kalshi is running an illegal gambling operation.

Liburdi said he would explain his reason for the ruling in an order, which was expected to be released Friday evening.

The federal Commodity Futures Trading Commission had sued Arizona in response to cease-and-desist letters sent to Kalshi from state gambling regulators and the criminal charges filed against the prediction market operator. The commission argued Arizona is intruding on its exclusive federal power to regulate national swaps markets.

Liburdi had previously denied Kalshi’s attempt to bar prosecutors from moving forward with the case and declined a request from the company for a ruling saying federal law trumps Arizona’s gambling laws. Liburdi said it was too early in the case for him to rule on that issue.

State prosecutors have charged Kalshi with 20 misdemeanor counts of wagering for allegedly accepting bets on political outcomes, college sports and individual player performance.

Arizona, the first state to file criminal charges against Kalshi, prohibits operating an unlicensed wagering business and betting on elections. The criminal charges mark a new front in a high-stakes legal battle over whether prediction markets should be subject to the same rules as gambling companies.

Kalshi maintains it’s a financial marketplace rather than a gambling operation and should only have to answer to the federal Commodities Futures Trading Commission, not the state of Arizona.

Richie Taylor, a spokesperson for the Arizona Attorney General’s Office, declined to comment. The Associated Press sent emails to Kalshi and the federal commission seeking comment.

Kalshi operates by allowing customers to buy and sell “Yes” or “No” contracts tied to the probable outcome of an event. It has said its product is different from gambling operations because Kalshi’s customers engage in “swaps” between one another instead of betting against the “house.”

In a lawsuit filed just days before prosecutors leveled the criminal charges, Kalshi argued federal law trumps Arizona’s efforts to subject it to state statute. It also contends that shutting down its ability to offer event contracts would threaten its viability, undermine confidence in the integrity of its platform and cause other problems for the business.

The company said Arizona filed the charges to interfere with its lawsuit.

Lawyers for the state contend Kalshi has marketed itself as a platform for sports and election betting and that Arizona should be able to enforce its gambling laws to hold Kalshi accountable for flouting state law.

Kalshi sued Arizona, Utah and Iowa in attempts to stop anticipated state actions against the platform. Other states have taken some form of legal action against Kalshi.

So far, the outcomes have been mixed. Federal and state judges in Nevada and Massachusetts, respectively, issued early rulings in favor of states looking to ban Kalshi and its competitor Polymarket from offering sports being in their states, while federal judges in New Jersey and Tennessee have ruled in favor of Kalshi.

Earlier this month, the federal government filed lawsuits against Connecticut, Arizona and Illinois challenging their efforts to regulate prediction market operators.

The Trump administration has so far backed the platforms.

President Donald Trump’s eldest son is an adviser for both Kalshi and Polymarket and an investor in the latter. Trump’s social media platform Truth Social is also launching its own cryptocurrency-based prediction market called Truth Predict.

The Associated Press