Federal Judge Calls CFTC Kalshi Emergency Order a 'Collusive Effort'
U.S. District Judge Colleen McMahon denied Novig's injunction bid on Nov. 10, ruled its sports event contracts are sports betting rather than federally protected swaps, and wrote that the CFTC's August emergency order shielding Kalshi 'smacks of a collusive effort between a regulator and regulatee
A sitting federal judge in Manhattan put the CFTC's regulatory favoritism on the record, in writing, in a 35-page opinion.
Key takeaways
- U.S. District Judge Colleen McMahon (SDNY) denied Novig's preliminary injunction against New York on Nov. 10, ruling its sports event contracts are sports betting, not swaps protected under the Commodity Exchange Act.
- McMahon wrote that the CFTC's August 2026 emergency order shielding rival platform Kalshi from state enforcement "smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption."
- Novig filed a notice of appeal to the Second Circuit the same day, but courts within that circuit have now sided with state enforcement over CFTC-registered prediction platforms in every ruling to date.
U.S. District Judge Colleen McMahon of the Southern District of New York denied Novig's motion for a preliminary injunction against New York Attorney General Letitia James and the state's Gaming Commission on November 10, 2026, per the 35-page opinion. In doing so, she handed down some of the most direct language a federal judge has used about a financial regulator in recent memory, calling the CFTC's emergency intervention on behalf of Kalshi a manufactured legal conflict, not a legitimate exercise of federal authority.
What the Court Found
Novig (operating as Ludlow Exchange, LLC) sued New York in August after the state moved to block its sports event contracts, arguing the Commodity Exchange Act gives the CFTC exclusive jurisdiction. McMahon found Novig unlikely to succeed on the merits and denied the injunction without reaching the other factors.
Her core holding: Novig's sports event contracts are probably not "swaps" under the CEA, because sporting events carry no "financial, economic, or commercial consequence" in the sense Congress intended. Even in the alternative, she wrote, federal law bars states only from regulating the licensing and operation of exchanges, not from applying their own gambling laws.
"The Court is not required to disregard common sense, Novig's sports event contracts are sports betting," McMahon wrote, citing Novig's own stated ambition to become "the largest sports betting platform in the world." She noted Novig could seek a New York gaming license, as it did in Colorado in 2023 before returning that license, and called the argument that it could not comply with both state and federal law "ridiculous."
The CFTC Gets Named
The sharpest part of the opinion concerns the CFTC's August emergency intervention on behalf of Kalshi, a competing prediction market. New York AG James had sued Kalshi on July 31, seeking a restraining order and more than $36 billion in damages. Kalshi responded on August 1 by filing a "market emergency" notification with the CFTC. The CFTC issued Emergency Order 9281-26 on August 11, instructing Kalshi to keep operating against the state's wishes, claiming a sudden shutdown posed "an existential threat to the Commission's registrants, marketplaces, and regulatory jurisdiction."
Novig argued that order proved an irreconcilable conflict between state and federal law. McMahon rejected that framing entirely.
"The Kalshi Order smacks of a collusive effort between a regulator and regulatee to generate a claim for conflict preemption."
She added that the claimed conflict is "a mirage" because the CFTC's own existing rules bar listing gaming-related event contracts. The agency, she found, used its emergency authority not to protect market stability but to construct a legal argument for federal preemption that wouldn't otherwise exist.
She was equally direct about the CFTC's October 19 rulemakings: one proposed defining sports-, politics-, culture-, and weather-related event contracts as swaps; a simultaneous interim final rule said bets placed with sportsbooks and casinos are not swaps. McMahon called the two rules "inherently contradictory and cannot be reconciled." This matters because the CFTC had used those rulemakings to bolster its preemption argument. The judge saw through it.
This is the second time the CFTC has deployed emergency authority to shield Kalshi from state enforcement; it previously did so against Michigan regulators.
What It Means Beyond the Injunction
The CFTC's behavior here fits a recognizable pattern: emergency powers deployed not for systemic stability but to protect a connected registrant and manufacture favorable law. A federal judge just said that in a court opinion, not an op-ed.
The same two-tier structure is visible across the regulatory state. The CFTC's history with Gemini's consent order showed a different federal court pushing back on the agency's posture as well. The question for Bitcoiners and freedom-tech builders is straightforward: who does the regulatory apparatus protect, and who does it crush? The answer, on the record, is becoming harder to ignore.
The falsifiable thesis here is that the CFTC's emergency powers were weaponized for incumbent protection rather than applied neutrally. The trigger that would disprove it: if the Second Circuit finds the August emergency order legally sound and consistent with how the CFTC treats all registrants facing state enforcement, not just Kalshi, the capture framing weakens. If the CFTC can point to a comparable emergency intervention for a small, unconnected DCM facing identical state pressure, the asymmetry argument loses force. So far, no such example has surfaced.
What to Watch
Novig filed its Second Circuit appeal the same day McMahon issued her ruling. The appeal path is long, and courts in that circuit have sided with state enforcement at every turn so far. The CFTC's October rulemakings remain pending; the outcome of that process will determine whether the agency can restructure its legal arguments before the appellate court weighs in. Watch for whether the Second Circuit addresses McMahon's "collusive effort" language directly, or sidesteps it on procedural grounds.
Sources
- SDNY Opinion, Nov. 10, 2026, Novig v. James (ECF 73)
- CFTC Emergency Order Release 9281-26, Aug. 11, 2026
- CFTC Emergency Order PDF
- Federal Register, CFTC Proposed Rulemaking, Oct. 19, 2026, FR Doc. 2026-21376
Frequently Asked Questions
What happens to Novig now that the injunction was denied?
Novig's Second Circuit appeal is now active. The company cannot legally offer its sports event contracts to New York users while the injunction denial stands. If the Second Circuit affirms McMahon's ruling, Novig would need to either obtain a New York gaming license or exit the state market. A reversal would reignite the federal preemption question and potentially force a reckoning over the CFTC's October rulemakings.
How does the CFTC's October rulemaking affect all prediction markets?
The CFTC proposed in October to classify sports, politics, culture, and weather event contracts as swaps, which would bring them under federal jurisdiction exclusively. A simultaneous interim final rule said bets placed through traditional sportsbooks are not swaps. McMahon called those two positions irreconcilable. If the proposed rule is finalized, it could either legitimize CFTC-registered prediction markets nationwide or face immediate legal challenge on the same preemption grounds courts have rejected so far.
