[00:00:00] Speaker 04:
Case number 24-5205, Cal-GX LLC versus Commodity Futures Trading Commission, a balance.

[00:00:08] Speaker 04:
Mr. Schwartz for the balance, Mr. Roth for the appellate.

[00:00:14] Speaker 05:
Good afternoon, sorry.

[00:00:25] Speaker 06:
Good afternoon, Your Honor.

[00:00:27] Speaker 06:
May it please the Court, I am Rob Schwartz.

[00:00:30] Speaker 06:
I am the General Counsel of the Commodity Futures Trading Commission for the Appellants.

[00:00:35] Speaker 06:
First of all, I want to thank you for holding this hearing this afternoon.

[00:00:39] Speaker 06:
These are important issues.

[00:00:41] Speaker 06:
And the District Court issued a seriously flawed decision that if it goes into effect,

[00:00:46] Speaker 06:
But let calcium immediately open its futures exchange to high stakes betting on the congressional elections in November.

[00:00:54] Speaker 06:
And when I say high stakes, I mean high stakes.

[00:00:57] Speaker 06:
One hundred million dollars is the maximum that one hundred million dollars can be bet.

[00:01:03] Speaker 02:
Well, for individuals, it's $125,000.

[00:01:05] Speaker 06:
That was stated in Kalshi's brief, but that's not correct.

[00:01:09] Speaker 06:
A wealthy individual qualifies as what's called an eligible contract participant.

[00:01:14] Speaker 06:
So a wealthy individual is eligible to bet up to $100 million, as is a corporation.

[00:01:22] Speaker 06:
I assume it would be easy enough for a wealthy individual to form a corporation, but they fall within the definition of eligible contract participant anyway.

[00:01:31] Speaker 06:
So that market will would open immediately and Cal she has also announced plans for a betting market on the presidential election.

[00:01:39] Speaker 06:
A competitor followed suit and announced its own plans for a betting market on the presidential election.

[00:01:45] Speaker 06:
And that competitor called forecast X also announced plans for markets on individual Senate races.

[00:01:54] Speaker 06:
If that happens, the harm to the public is going to be profound at a time, and I don't mean to be dramatic, but Americans broadly believe that our democracy is under threat before this court even has an opportunity to consider the issues, to fully consider the issues anyway.

[00:02:13] Speaker 06:
And unlike Kalshi, we have substantiated our claims of harm.

[00:02:16] Speaker 06:
Kalshi's claims are entirely unsubstantiated, and by comparison, they are minor.

[00:02:22] Speaker 02:
Can you explain the harm?

[00:02:23] Speaker 02:
Because it's just not clear to me how manipulation of this events contract market would affect elections or election integrity.

[00:02:32] Speaker 06:
Right.

[00:02:34] Speaker 06:
The want to start with the manipulation because that was your question, but election integrity is a whole different ball of and it relates, but there's a lot of other aspects to that.

[00:02:44] Speaker 06:
But the market manipulation.

[00:02:46] Speaker 06:
Look, if people as calcium say says, look to these markets for important information about an election.

[00:02:55] Speaker 06:
If somebody distorts the market to make it look like one candidate or another is doing better or worse than they are, that could affect allocation of resources, volunteers, turnout.

[00:03:07] Speaker 06:
Who knows?

[00:03:09] Speaker 02:
Is that true?

[00:03:09] Speaker 02:
Because if you believe that markets work, if somebody is, I guess, making a bet for reasons other than the bet being correct, somebody will take the other side and eat their lunch.

[00:03:20] Speaker 02:
It's not what's supposed to happen.

[00:03:22] Speaker 06:
That's what's supposed to happen, but these election markets are uniquely susceptible to manipulation that can't be corrected like that.

[00:03:29] Speaker 06:
And it's because the sources of information that they absorb and reflect are opaque and unreliable.

[00:03:37] Speaker 06:
I am talking about polls with undisclosed methodologies or with bad methodologies, fake polls, pollsters with agendas, inaccurate news, fake news.

[00:03:48] Speaker 06:
On and on.

[00:03:49] Speaker 06:
A normal futures contract will have an objective indicator that is reliable, some kind of a published index, a government report.

[00:03:58] Speaker 06:
This is a unique kind of market.

[00:04:00] Speaker 06:
And we would give it examples of it being of betting markets on political candidates being manipulated.

[00:04:07] Speaker 06:
But those were just a sample.

[00:04:09] Speaker 06:
We also cited a University of Missouri Law Review article that lays out

[00:04:15] Speaker 06:
very well, I think, the problem of fake polls and the connection to these betting markets.

[00:04:22] Speaker 02:
So is your theory of irreparable harm that this market will be manipulated, or is it the connection to the larger election and election integrity?

[00:04:31] Speaker 06:
It could be either, right?

[00:04:32] Speaker 06:
I mean, the market being manipulated would be a harm to the participants in the market, and it could be done in a way that harms election integrity.

[00:04:41] Speaker 02:
Talk about the election integrity.

[00:04:43] Speaker 06:
Yeah, I think

[00:04:46] Speaker 06:
To me, to my mind, the more immediate concern is the perception of election integrity.

[00:04:53] Speaker 06:
And that's important, right?

[00:04:57] Speaker 06:
This is not a hypothetical that people would be... We had 600 comment letters cited in the order and in the administrative record expressing exactly this concern that betting on elections will undermine

[00:05:11] Speaker 06:
election integrity.

[00:05:12] Speaker 06:
And those 600 are entirely the group of people who might ever respond to a CFTC request for comment.

[00:05:19] Speaker 06:
It's fair to assume that there are many, many more out there who would feel the same way.

[00:05:27] Speaker 06:
And again, I don't want to be too dramatic, but we live in a country where tens of millions of Americans believe the last presidential election was stolen.

[00:05:38] Speaker 02:
Last week, there was an assassination attempt, the second three months on one of our... Can you be more specific about how this market is connected to election integrity?

[00:05:48] Speaker 03:
I mean, you know, Kalchi argues that there are other markets already trading in this, that these are common in Europe.

[00:05:55] Speaker 03:
I understand that election integrity is important and that the perception of fairness of elections is important.

[00:06:00] Speaker 03:
I think the point that you need to make is how a market is going to affect how people vote.

[00:06:13] Speaker 03:
People have enormous incentives

[00:06:17] Speaker 03:
to advance their political interests.

[00:06:24] Speaker 03:
Some people do.

[00:06:24] Speaker 03:
And it's unclear to me why and how you think markets in these event contracts would

[00:06:35] Speaker 06:
Well, like the election itself.

[00:06:39] Speaker 06:
I think your honor put her finger on it when she said that people will go to lengths to advance their political agenda.

[00:06:45] Speaker 06:
If there is one hundred million dollars to be made, it is entirely imaginable to organize a group of people to engage in malign behavior, to mess with them, organized voting for a candidate.

[00:07:01] Speaker 03:
How can voting people can vote for whatever reason they want?

[00:07:04] Speaker 03:
How could people?

[00:07:05] Speaker 03:
You could vote because Taylor Swift says you should.

[00:07:11] Speaker 03:
You could vote because you had a dream.

[00:07:13] Speaker 03:
You could vote because, you know, you flipped a coin that morning.

[00:07:18] Speaker 06:
Absolutely true, but our administrative record contains hundreds and hundreds of letters from Americans who are concerned about that, who are concerned that the elections will not reflect the true political will, that there will be other incentives that would destroy what these markets are supposed to be.

[00:07:32] Speaker 05:
So maybe your comment letters, but you have a finding that's just going to happen, particularly given that this predictor is already operating out there doing this very thing.

[00:07:43] Speaker 05:
I get it not on a licensed exchange,

[00:07:47] Speaker 05:
And then, is it right that the University of Iowa is doing this too?

[00:07:54] Speaker 06:
So that's that's two questions.

[00:07:56] Speaker 06:
I think, yes, it's in the order that the commission issued based on that and other things, the comment letters and other things about concerns.

[00:08:03] Speaker 05:
I mean, the fact that you get comments is not.

[00:08:08] Speaker 05:
All kinds of comments come in and I'm not dismissing the concerns of validity whatsoever.

[00:08:12] Speaker 05:
But what we need is I don't think it ever counts as irreparable harm to say that we got lots of letters from people who think this is a bad idea.

[00:08:19] Speaker 06:
No, I mean, in this case, I see it as evidence that there will be a problem with perception of election integrity because we have people telling us that they would have a problem believing that the elections have integrity.

[00:08:32] Speaker 06:
if high stakes gambling starts to take place on the market.

[00:08:36] Speaker 05:
I didn't tell you that, so I'm not sure what to do with just saying you have a lot of letters.

[00:08:42] Speaker 05:
I can cut more concrete terms.

[00:08:44] Speaker 05:
So Predictive has been operating since the 90s, is that right?

[00:08:48] Speaker 06:
Since 2014.

[00:08:51] Speaker 06:
Predictive has a limit of $850.

[00:08:55] Speaker 06:
It is small scale.

[00:08:57] Speaker 06:
There are low position limits.

[00:08:58] Speaker 06:
It operates by a no action letter issued to the University of Victoria in New Zealand.

[00:09:05] Speaker 06:
It's supposed to be, it's non-profit.

[00:09:06] Speaker 06:
It's supposed to be, it's supposed to be for academic purposes.

[00:09:10] Speaker 06:
It bears very little resemblance to what Cal she proposes to do here and does not.

[00:09:16] Speaker 05:
Same thing with the lower dollar limit.

[00:09:18] Speaker 05:
Is there any other difference?

[00:09:20] Speaker 06:
It is a much lower dollar limit, much lower position limits.

[00:09:23] Speaker 06:
They're not supposed to advertise.

[00:09:26] Speaker 06:
And the fact that it's supposed to be for academic purposes and the University of Iowa's market.

[00:09:31] Speaker 05:
The academic purposes does to assure the people who write the letters to you.

[00:09:34] Speaker 05:
But you say they're not supposed to advertise.

[00:09:37] Speaker 05:
Have they advertised?

[00:09:38] Speaker 06:
I'm not aware of it.

[00:09:39] Speaker 05:
So they're not advertising.

[00:09:40] Speaker 05:
They have a much lower limit.

[00:09:44] Speaker 06:
Yeah, it's not the same sort of corrupting

[00:09:48] Speaker 02:
Is there a limit on the number of contracts?

[00:09:51] Speaker 06:
There is a limit on the number of contracts.

[00:09:54] Speaker 02:
But then, is it true then that what you're really focused on is the dollar amount?

[00:09:59] Speaker 02:
Because you gave a no action letter to predict it.

[00:10:02] Speaker 02:
So just the mere fact of, I guess, betting on elections was not objectionable to you.

[00:10:08] Speaker 02:
So is it just the dollar amount that's a problem here?

[00:10:11] Speaker 06:
Well, it was subject to it.

[00:10:13] Speaker 06:
That's certainly part of it.

[00:10:14] Speaker 06:
It was predicted.

[00:10:16] Speaker 06:
No action letter was subject to these kinds of conditions because exactly because the theory was that it wouldn't have the sort of either corrupting influence or the potential for the perception of corrupting influence.

[00:10:30] Speaker 06:
So I know this is much smaller scale.

[00:10:33] Speaker 06:
I don't think it's comparable.

[00:10:34] Speaker 06:
I don't think polymarket, which is prohibited from doing business in the United States,

[00:10:38] Speaker 06:
comparable and I also don't think polymarket is having the distorting effects that that you're you fear I am I am not aware I think if you because polymarket is not allowed to do business in the United States I think if you went out in the street maybe in a different city than Washington DC and ask 10 people

[00:10:59] Speaker 06:
you know what Polymarket is, I think you'd have nine or 10 people who would say no.

[00:11:02] Speaker 06:
Now she is planning, their declaration says that they've reserved, they've committed $1.5 million for advertising.

[00:11:09] Speaker 06:
People are gonna know.

[00:11:10] Speaker 02:
$1.5 million is not very much money for national advertising to affect a campaign.

[00:11:15] Speaker 02:
Yeah, I don't know how much they cost during the debates, but that would be a... But the things that you fear have not been caused by Polymarket because American investors can invest in Polymarket by using a VPN.

[00:11:27] Speaker 06:
There may be, they read in Bloomberg that there are some number of people who are willing to use a workaround to use Polymarket, but that's a different type of person who would follow the rules if there was something else that they, if they wanted to do this activity, but maybe wouldn't use a VPN to get onto Polymarket.

[00:11:47] Speaker 03:
I wouldn't understand the relationship between

[00:11:51] Speaker 03:
The article that you pointed to about this recent failed attempt to manipulate a polymarket contract, where the underlying was itself an election betting contract.

[00:12:03] Speaker 03:
So that was like a contract on top of a contract, right?

[00:12:07] Speaker 03:
Because it was a, they were trying to affect a three hour window.

[00:12:11] Speaker 03:
And as I understand it, the primary product that Kalshi is wanting to sell is,

[00:12:19] Speaker 03:
a contract that would come due on the date of the elections, when the election results are known.

[00:12:28] Speaker 03:
Would their ability to put out that contract imply that there would be these shorter term contracts?

[00:12:40] Speaker 03:
I'm wondering about how relevant applicable

[00:12:44] Speaker 03:
to their product is this effort to affect a three-hour window, which was basically the effort I gathered to pump up the price of an overlaying contract.

[00:12:56] Speaker 06:
That was closer to a traditional market manipulation.

[00:12:59] Speaker 06:
Open market manipulation is what we would call it.

[00:13:03] Speaker 06:
Things like the Kid Rock versus Senator Stabenow poll is not.

[00:13:08] Speaker 06:
I mean, it went right in the chat.

[00:13:11] Speaker 06:
on Predict It, I believe.

[00:13:12] Speaker 06:
And Kalshi runs a similar thing.

[00:13:14] Speaker 06:
It's very, if you're like me and you're somebody who in election season refreshes the 538 webpage every day, you see that there's a lot of pollsters that you don't recognize.

[00:13:25] Speaker 06:
So it's very easy to imagine people putting out a poll that is taken seriously.

[00:13:29] Speaker 03:
I just had a specific question because I'm trying to understand the dynamic that is, I gather very familiar to you, that how would, you know, if I bought a,

[00:13:41] Speaker 03:
contract that was short or long on one of the houses of Congress going a particular way, I gather that you're saying as a factual matter that having these, I would be waiting until that happened.

[00:13:57] Speaker 03:
And I'm not sure what I would be manipulating in between.

[00:14:00] Speaker 03:
And if I was a voter and I had a political orientation, I'd presumably be doing all the things that I cared about as well.

[00:14:07] Speaker 03:
And I don't do any of those things because I'm a federal judge.

[00:14:11] Speaker 03:
But it sounds like the creation of these incentives for short term

[00:14:19] Speaker 03:
information manipulation depends not just on their basic product, but on there being a market for shorter term pricing.

[00:14:27] Speaker 03:
And is that just the nature of the price for their product goes up and down?

[00:14:31] Speaker 06:
Yeah, I understand.

[00:14:32] Speaker 06:
Yeah.

[00:14:32] Speaker 06:
The price of the product goes up and down and there would be speculators that would come in and out of the market and out of the market that could be financially injured by something like that.

[00:14:42] Speaker 06:
And so it's not that it would be all buy and hold.

[00:14:47] Speaker 03:
So I would buy

[00:14:48] Speaker 03:
you know, on day one, and then it would try to rev up the price and sell on day three.

[00:14:53] Speaker 03:
And the idea is that anybody holding any position in this market could be trying to

[00:15:01] Speaker 03:
push the market in some short-term way that could affect things like early voting, absentee ballot voting, people's sense of whether it's worth it to go out and do grassroots election work that

[00:15:22] Speaker 03:
illusory dips and jumps in the chances of one or another house being controlled by one or another party could have effects on people's actual political behavior.

[00:15:39] Speaker 05:
That's the theory.

[00:15:40] Speaker 06:
I couldn't have said it better.

[00:15:41] Speaker 06:
Thank you.

[00:15:43] Speaker 05:
Can I ask you,

[00:15:45] Speaker 05:
Is what predicted is doing so it doesn't advertise as a different purpose and has a lower dollar amount that nonetheless under the commission's theory and activity that's unlawful under state laws against election gambling.

[00:16:05] Speaker 05:
Or gaming, you know, I would leave that to the states to decide it certainly seems similar Theory for no theory here against them is that it qualifies as gaming or Feels me like the same thing again.

[00:16:22] Speaker 05:
You can tell me if I'm wrong, but gaming that's outlawed by state law and

[00:16:26] Speaker 06:
Interesting.

[00:16:26] Speaker 06:
So this provision applies only to registered designated contract markets.

[00:16:31] Speaker 06:
So that wouldn't directly apply to predict it, which is not.

[00:16:36] Speaker 05:
And why do they need a no action letter from you if you don't regulate their market?

[00:16:39] Speaker 06:
The no action letter is so that they won't have to register and be regulated.

[00:16:45] Speaker 06:
And at the time, that was deemed acceptable because it was smooth.

[00:16:49] Speaker 05:
So if you just say they don't have to register, then they'd be fine?

[00:16:53] Speaker 06:
Uh, the staff issued a letter that said we won't recommend an enforcement action if you, uh, if solely for the reason that you haven't registered, uh, as an exchange.

[00:17:04] Speaker 05:
So I'm trying to figure, I know, so I'm trying to understand, um, but in your view, it predict it's doing, if your view is that lots of states ban gambling on elections, then predict it, which is based where?

[00:17:23] Speaker 06:
You know, I hadn't thought about it, but now that you're saying it, predicates lawyer may well be in the room becomes these things.

[00:17:28] Speaker 06:
So it may well be a violation of state law to do that.

[00:17:34] Speaker 06:
I don't know.

[00:17:35] Speaker 05:
I assume that their lawyers are good enough to have looked at these harms that you've been mentioned selection integrity and manipulation.

[00:17:43] Speaker 05:
Does it change just because they're on a license exchange?

[00:17:48] Speaker 05:
I'm sorry, is it registered or licensed?

[00:17:49] Speaker 05:
I'm not sure.

[00:17:50] Speaker 06:
Well, it's designated technically, but yeah.

[00:17:55] Speaker 05:
Seal of approval.

[00:17:57] Speaker 06:
It's it's the size.

[00:17:58] Speaker 06:
It's the dollar amounts.

[00:18:00] Speaker 06:
It's the it's those things.

[00:18:03] Speaker 06:
I don't know if we would give out the same no action letter today if someone like predicted came to us.

[00:18:08] Speaker 06:
But, you know, that doesn't really matter right now.

[00:18:10] Speaker 06:
But I know that somebody like Cal she proposing what they're proposing would not get a no action letter.

[00:18:16] Speaker 05:
Well, because sometimes you've talked about in your briefs that those are different because this is a designated approved exchange.

[00:18:26] Speaker 05:
And I don't know if that's just a legal argument as to why we're talking about the statutory provision and don't have to do that for predicted or does that bear on your assessment of harm?

[00:18:35] Speaker 05:
That's what I'm trying to figure out.

[00:18:37] Speaker 06:
I mean, part of it is that it gives it a legitimacy that it wouldn't have.

[00:18:41] Speaker 03:
And you think it's going to draw in a lot more money?

[00:18:43] Speaker 06:
That is, and so do they, I'm sure.

[00:18:47] Speaker 03:
I have some questions about your stature interpretation, which I gather the threshold question is, if we don't agree with you but agree with the policy on the meaning of involves, then you don't have, it doesn't matter what we think on gaming or activities unlawful under any sort of federal law, right?

[00:19:10] Speaker 06:
I think that's right.

[00:19:11] Speaker 06:
The error that the district court committed about the word involved permeates the entire opinion.

[00:19:16] Speaker 06:
The word is not connected to the part of the statute that talks about the underlying.

[00:19:23] Speaker 03:
So if you're right about involve, that the statute applies to a contract that involves an enumerated activity, both when the activity

[00:19:37] Speaker 03:
is the underlying or when the contract itself relates to or entails or has essential features or consequences touching on that enumerated activity.

[00:19:48] Speaker 03:
So it's both.

[00:19:49] Speaker 03:
It's the underlying or the event contract.

[00:19:54] Speaker 03:
that involves one of the enumerated activities.

[00:19:58] Speaker 03:
If that's right, and you're applying it to the enumerated activity of something that's unlawful under any state law, Coleshay argues that that would allow the commission to subject any event contract to public interest review under the special rule because there are states that outlaw event contracts generally.

[00:20:17] Speaker 06:
That's their argument, but that's not what the commission did.

[00:20:22] Speaker 06:
The commission decided the case before it.

[00:20:25] Speaker 06:
It cited a variety of sources.

[00:20:28] Speaker 06:
The state laws made sense because states are the almost exclusive regulators of gaming.

[00:20:34] Speaker 06:
And it applied the prong that said, wagering a sum of money on a contest of others.

[00:20:38] Speaker 03:
I'm not talking about the gambling part.

[00:20:40] Speaker 03:
I'm talking about the unlawful under state law part.

[00:20:44] Speaker 03:
So the argument is that some state laws outlaw

[00:20:51] Speaker 03:
wagering on elections.

[00:20:53] Speaker 03:
College comes back and says, well, if your idea of involving is right, that involving could mean the contract rather than just the underlying, there are state laws that outlaw event contracting in general.

[00:21:09] Speaker 03:
If that is a trigger under your interpretation of involving as applied to unlawful under state law, if that is a trigger for public interest review, then there is no

[00:21:21] Speaker 03:
event contract over which you don't have at least the option to exercise public interest review.

[00:21:29] Speaker 03:
A, does that make all the enumerated categories unnecessary?

[00:21:34] Speaker 03:
B, is that in conflict with the Modernization Act, which said, no, you don't have to do public interest review for everything.

[00:21:45] Speaker 03:
I thought you had some distinction between state law that is directed at event contracting and state law that is making some substantive other independent unlawfulness determination, but I'm not hearing that.

[00:22:02] Speaker 06:
But what I'm understanding Cal should be saying is that if you have a gambling law that prohibits wagering on a contingent event, then that can't be unlawful because if you put it on a designated contract market, the CEA preempts whatever the state law that generally prohibits wagering on contingent events.

[00:22:25] Speaker 06:
But these are election integrity laws.

[00:22:28] Speaker 06:
A lot of them you'll see, there's a long footnote in your order, are in the election laws of some of these states.

[00:22:34] Speaker 06:
An interesting one to me is the Wisconsin law and the penalty for betting on an election

[00:22:41] Speaker 06:
is that you can't vote in that election.

[00:22:44] Speaker 06:
So I'm not at all sure that if you are wagering something on a designated contract market, I don't know what Wisconsin would think about that.

[00:22:54] Speaker 03:
You might well still be violating Wisconsin law because that's not... You looked to state laws to determine whether

[00:23:02] Speaker 03:
you have the opportunity to do public interest review.

[00:23:05] Speaker 03:
And so it would really be helpful to know the commission's view.

[00:23:09] Speaker 03:
What is the difference in terms of identifying activity that's unlawful under state law between laws that ban election betting and laws that ban all event contracts?

[00:23:25] Speaker 03:
I take it you don't think or do you think you have authority

[00:23:29] Speaker 03:
to, given that there are laws, state laws that ban all event contracts, to review all event contracts?

[00:23:39] Speaker 06:
No.

[00:23:40] Speaker 03:
OK.

[00:23:40] Speaker 03:
So what's the difference between those and state laws that ban election betting in terms of triggering the public interest review?

[00:23:48] Speaker 06:
Yeah, a different category of activity.

[00:23:51] Speaker 06:
I think we're all agreed that the federal statute preempts anything that the state could have to say about what would otherwise be an illegal bet on an exchange.

[00:24:04] Speaker 03:
That's an argument that's confusing, because maybe that is the answer.

[00:24:07] Speaker 03:
I think we both agree on it.

[00:24:10] Speaker 03:
I'm not quite getting there.

[00:24:11] Speaker 03:
Well, if you're looking ex ante, you haven't yet authorized

[00:24:16] Speaker 03:
the thing that's being proposed.

[00:24:19] Speaker 03:
So there's no preemption taking place.

[00:24:21] Speaker 03:
And you're looking at the field of state law to say, what are the kinds of things that might be really contrary to the public interest?

[00:24:27] Speaker 03:
Well, we've got assassination, and war, and terrorism listed.

[00:24:31] Speaker 03:
But let's also look at state law and say, what are other kinds of things that might really be contrary to public interest?

[00:24:39] Speaker 03:
There's nothing that's been preempted yet.

[00:24:41] Speaker 03:
So you're looking at and saying, is this something that we should take up and look at under public interest review?

[00:24:47] Speaker 06:
Yeah, I think the way the process works is the issue here.

[00:24:52] Speaker 06:
There is no obligation on the part of any exchange to get sign off from the CFTC before listing a product, unlike the SEC, where if you're going to put a security on a national securities exchange, you have to have it.

[00:25:07] Speaker 06:
approved, but there's a process called self certification.

[00:25:11] Speaker 00:
Right.

[00:25:11] Speaker 06:
Right.

[00:25:12] Speaker 06:
So I can say it's a, you know, a notice filing over to the CFTC before the open of business on Monday.

[00:25:19] Speaker 06:
I can list the contract on Tuesday.

[00:25:21] Speaker 06:
So it's almost always, and it's a retrospective look and it's what happened here.

[00:25:27] Speaker 06:
They, uh, calcium made its notice filing and the CFTC initiated the process of, of reviewing it, but that's the, that's the exception.

[00:25:35] Speaker 02:
My understanding from your brief, I thought your position was that you're not relying on general state laws that say you can't gamble on this, that and the other thing because that's preempted by the CEA.

[00:25:48] Speaker 02:
But there are statutes that separate apart from just gambling on any old thing that are not preempted because they, I thought you said that it advanced other state interests such as the state election integrity.

[00:26:00] Speaker 02:
There's a separate statute that says you can't bet on

[00:26:03] Speaker 02:
elections.

[00:26:05] Speaker 02:
So that's what I read your brief to be saying.

[00:26:08] Speaker 02:
That's why it's different from what Judge Pillard posited.

[00:26:11] Speaker 02:
It's not just general.

[00:26:12] Speaker 02:
You're not relying on all gambling is illegal under state law.

[00:26:17] Speaker 02:
You're relying on there's a separate interest about not gambling on elections, and the state interest is election integrity.

[00:26:24] Speaker 06:
Yeah, I think that's right.

[00:26:25] Speaker 06:
I mean, historically, the all gambling is illegal under state law is a significant reason that there is a federal regime here.

[00:26:32] Speaker 06:
Because it is long ago, and I guess what's old is new again, there was a persistent debate about whether trading futures was just gambling and it ought to be illegal.

[00:26:44] Speaker 06:
So there are laws under state law that would ban it, but they don't have that impact.

[00:26:48] Speaker 03:
So you mentioned Wisconsin.

[00:26:50] Speaker 03:
Can I just follow up one thing?

[00:26:52] Speaker 03:
So I suspect that the answer is somewhere in there to my question that

[00:26:57] Speaker 03:
We know that ex ante the Humanities Futures Act does preempt a state law that categorically bans the activity that the CFTC can regulate, but that it doesn't ex ante preempt these other more, as Judge Pan was saying, these more specific to a particular kind of malign activity

[00:27:26] Speaker 03:
or a contract that could be problematic in the state's view.

[00:27:29] Speaker 03:
I think that's right.

[00:27:32] Speaker 03:
And so you look, so you do have some kind of ex ante idea about preemption of these general anti-event contract laws, but you would have to, but it still makes sense for Congress who have written this list to direct CFTC's attention to

[00:27:54] Speaker 03:
contracts or activities that are in violation of state or federal law.

[00:27:58] Speaker 06:
Yeah, I agree with that.

[00:28:02] Speaker 05:
You mentioned Wisconsin, which defines that not to include bona fide business transactions, contracts for purchase or sale at a future date of securities or other commodities and agreements to compensate for the loss caused by the happening of the chance.

[00:28:20] Speaker 05:
So I don't think

[00:28:22] Speaker 05:
Wisconsin.

[00:28:23] Speaker 05:
I don't understand why you think Wisconsin would even apply to these event contracts.

[00:28:30] Speaker 06:
I am looking at the part of the law that's quoted in our order, which.

[00:28:35] Speaker 05:
Well, that's the problem.

[00:28:35] Speaker 05:
I think when it looked at your order, you just sort of had the wager or bet language.

[00:28:39] Speaker 05:
But then I've looked at almost all the state laws and the overwhelming majority.

[00:28:49] Speaker 05:
Well, certainly in their definition of gambling generally will back out.

[00:28:53] Speaker 05:
business transactions, some women say things like event contracts, these types, have language that tells me at least that it's quite unclear whether those laws apply.

[00:29:03] Speaker 05:
And then even within their election laws, I haven't found any that are clear that they apply.

[00:29:09] Speaker 05:
There are some that, there are many of them have backouts like this Wisconsin one does.

[00:29:14] Speaker 05:
Others it's just unclear whether wager or bet would be interpreted under the statute to apply to hedging

[00:29:23] Speaker 05:
economic risk.

[00:29:26] Speaker 05:
And so the extent the commission rests its argument on there's some distinct state interest here, but then has not cited statutes that with specificity show me that in fact states would ban this type of hedging economic risk.

[00:29:53] Speaker 05:
and call it gambling or gaming.

[00:29:56] Speaker 05:
What am I to do with your argument?

[00:29:59] Speaker 06:
I don't want to press the issue if the court is is unpersuaded, but I'm asking you.

[00:30:05] Speaker 05:
I mean, you all said this is this is your rationale.

[00:30:07] Speaker 05:
So I think you kind of have to pick.

[00:30:08] Speaker 06:
No, no, I understand.

[00:30:10] Speaker 05:
I understand.

[00:30:11] Speaker 06:
I confess that you may have dug into this more than I have at that point.

[00:30:16] Speaker 06:
I just don't have an answer.

[00:30:17] Speaker 05:
I'm not talking about you personally.

[00:30:19] Speaker 05:
There's a decision of the commission itself.

[00:30:23] Speaker 05:
That's what we're examining.

[00:30:24] Speaker 05:
And it's that decision that cites lots of these state laws.

[00:30:29] Speaker 05:
But if when we turn to those state laws, the overwhelming majority do not extend to business transactions, including in states of bar gambling entirely, do not extend to these, then I'm not sure have you shown

[00:30:45] Speaker 05:
that there is a violation.

[00:30:47] Speaker 05:
Now, there are some that don't have back-up language.

[00:30:49] Speaker 05:
I want to be fair.

[00:30:50] Speaker 05:
It's small.

[00:30:52] Speaker 06:
Maybe I wasn't understanding the question.

[00:30:56] Speaker 06:
So I think your question is.

[00:30:58] Speaker 05:
Have you shown any of these would violate?

[00:30:59] Speaker 05:
This would violate state law is what I'm asking you.

[00:31:01] Speaker 05:
It's a commission decision.

[00:31:02] Speaker 05:
I don't mean you personally.

[00:31:03] Speaker 06:
Thank you.

[00:31:04] Speaker 05:
It would violate state law.

[00:31:05] Speaker 06:
Yeah.

[00:31:06] Speaker 06:
I might not have understood the question initially.

[00:31:10] Speaker 06:
Is the assumption that

[00:31:15] Speaker 06:
Because it is an event contract that is traded on the exchange, that would make it a business transaction not covered by the state law.

[00:31:27] Speaker 05:
So I have not researched thoroughly all 50 states' law.

[00:31:33] Speaker 05:
I'm telling you that textually, they say Wisconsin is the one you wanted to talk about.

[00:31:37] Speaker 05:
And I read to you what Wisconsin's law says.

[00:31:40] Speaker 05:
You can't better wager on elections, right?

[00:31:44] Speaker 05:
Right.

[00:31:45] Speaker 05:
They define bet.

[00:31:47] Speaker 05:
A bet does not include, not include, bona fide business transactions, which are valid under the law of contracts.

[00:31:55] Speaker 05:
I don't think this matters if it's on an exchange or not.

[00:31:58] Speaker 05:
Are these bona fide?

[00:31:59] Speaker 05:
Have you, I don't see in your record, do you explain why these are not bona fide business transactions?

[00:32:04] Speaker 05:
It doesn't include contracts for the purchase or sale at a future date of securities or other commodities.

[00:32:10] Speaker 05:
I'm assuming other commodities includes excluded commodities.

[00:32:13] Speaker 05:
Maybe I'm wrong, but the commission hasn't shown that.

[00:32:15] Speaker 05:
Agreements to compensate for loss caused by the happening of the chance, and it goes up without limitation, blah, blah, blah.

[00:32:20] Speaker 05:
I mean, they're talking about insurance and things like that, but I don't know why that language wouldn't capture this type of hedging against economic

[00:32:29] Speaker 05:
risk.

[00:32:29] Speaker 05:
And so I'm not sure and we don't have time for me to go through all the states where there are backouts or language that to me looks like it could be a back out.

[00:32:40] Speaker 05:
And so I'm really just making asking here whether the commission decision that's given to us has actually shown that any state law would be violated by

[00:32:55] Speaker 05:
an event contract that is meant to indemnify against risk.

[00:33:02] Speaker 06:
It's not in the order, so I can't tell you.

[00:33:05] Speaker 05:
Don't they have to do that?

[00:33:10] Speaker 05:
To show that you've got something that you've got a ground for?

[00:33:13] Speaker 06:
I think that

[00:33:18] Speaker 06:
If it's not correct that some of these statutes apply, then the commission will have failed to do something that is required otherwise to do.

[00:33:26] Speaker 05:
Well, then how can you have any basis for not authorizing?

[00:33:29] Speaker 05:
I mean, you have to show a likelihood of success here.

[00:33:31] Speaker 05:
Right.

[00:33:32] Speaker 05:
First day.

[00:33:33] Speaker 05:
And so how can you have a likelihood of success if you haven't shown?

[00:33:36] Speaker 05:
I'm not saying whether you could or could not.

[00:33:38] Speaker 05:
These state laws could be court decisions I don't know about.

[00:33:41] Speaker 05:
They could be regulatory.

[00:33:43] Speaker 05:
interpretations I don't know about, but if the commission hasn't done its homework to show that, besides the textual interpretive difficulties that the briefs go back and forth on, that one of these event contracts would in fact violate a state gambling law, including bars against gambling on elections, then how would you be able to succeed?

[00:34:11] Speaker 06:
I think if the string site is correct, then it doesn't raise an issue.

[00:34:14] Speaker 06:
It's a string site like any.

[00:34:16] Speaker 05:
The string site is leaving out all kinds of information.

[00:34:17] Speaker 05:
I don't know what you mean the string site is correct.

[00:34:19] Speaker 05:
It's leaving out, it cites Wisconsin, but it leaves out the definition of bet.

[00:34:23] Speaker 03:
I mean, I thought your answer had to be, it's not a contract meant to indemnify against risk.

[00:34:31] Speaker 03:
I mean, that's part of the commission's finding was it doesn't have a significant hedging or price basing function.

[00:34:41] Speaker 03:
It's a little circular to say that it's a bona fide business transaction before it's been reviewed and allowed.

[00:34:50] Speaker 03:
Right.

[00:34:51] Speaker 03:
And it's a little circular to say that it's insurance, or it's a contract for the sale of a commodity.

[00:34:57] Speaker 03:
So I think the question is, do you have any view on the, I mean, this was an example that the commission featured, why these would be the kinds of election wagering contracts that would be contrary to state law.

[00:35:13] Speaker 03:
And from what I glean, it has to do with that these aren't

[00:35:18] Speaker 03:
Contracts that have an economic function, but are sort of old school just speculative.

[00:35:26] Speaker 02:
Just gambling betting contracts and who typically is on either side of one of these transactions are these business transactions.

[00:35:34] Speaker 06:
This has, the commission made its public interest finding that it's very unlikely that it would be used as a legitimate business transaction or as a hedging transaction on more than an occasional basis.

[00:35:47] Speaker 06:
There's a lot of reasons why it wouldn't be useful as a hedging tool.

[00:35:51] Speaker 05:
Where is that finding?

[00:35:53] Speaker 06:
That is in the public interest finding in New York.

[00:35:57] Speaker 05:
How do you know?

[00:35:58] Speaker 05:
If I own a business,

[00:36:02] Speaker 05:
that a private prison business.

[00:36:07] Speaker 05:
I don't mean to pick on any particular company, but I'm trying to think of one that would really change based on an election outcome.

[00:36:13] Speaker 05:
This is my business.

[00:36:14] Speaker 05:
I think I'm going to have good business if X party gets into control of the House of Representatives, Senate, White House.

[00:36:23] Speaker 05:
And I'm going to be in real trouble because this person has been campaigning against these if that person gets in or this party gets in.

[00:36:30] Speaker 05:
How do you know that the people, I mean, I get the point that there may be people that hop on to these exchanges that are not hedging against economic risk.

[00:36:42] Speaker 05:
That could happen, I guess, with anything that you have on your exchanges.

[00:36:46] Speaker 05:
But how do you, this is what seems to be very difficult because in some of the legislative history, they say, look, we're concerned, we want to make sure people can hedge against

[00:36:57] Speaker 05:
risks that they're facing, that there's a real commercial interest here, and it's not just online gambling.

[00:37:03] Speaker 05:
But how do you know?

[00:37:04] Speaker 05:
How do we know who's going to buy these contracts if they have businesses that will be very, we can imagine a lot of businesses that are gonna be very much affected by who controls the House, the Senate, the White House, and they may really need to hedge.

[00:37:18] Speaker 05:
And that would be a legitimate, that would be a legitimate event contract if they were hedging, correct, for commercial reasons.

[00:37:24] Speaker 06:
If they were, and we put it out for comment, and if all of these businesses had come out of the woodwork and said, we need this for edging, we may have reached a different result.

[00:37:33] Speaker 05:
I can imagine businesses not wanting to go on the public record and say, we need to do this.

[00:37:38] Speaker 05:
Well, again, I don't know.

[00:37:40] Speaker 05:
Law firms will sometimes.

[00:37:41] Speaker 05:
If it doesn't, it tells me how to interpret a statute.

[00:37:45] Speaker 05:
And if the concern here is that, I just don't know on what basis you could find

[00:37:51] Speaker 05:
that everybody, I get a concern that a lot of people may jump in who are not doing this for commercial reasons.

[00:37:59] Speaker 05:
But I don't know how you sort out, because I can imagine easily lots of people doing it for commercial reasons.

[00:38:06] Speaker 06:
But we didn't get lots of people.

[00:38:07] Speaker 06:
And they've only been able to come up with idiosyncratic examples.

[00:38:11] Speaker 05:
Am I not idiosyncratic?

[00:38:12] Speaker 06:
I think it's a little idiosyncratic.

[00:38:13] Speaker 06:
I think there's just not that many.

[00:38:18] Speaker 05:
I'm very surprised.

[00:38:20] Speaker 06:
All we can do is to go on the administrative record.

[00:38:22] Speaker 05:
You have said it's fine to have event contracts on whether legislation is going to pass.

[00:38:28] Speaker 05:
Is that correct?

[00:38:29] Speaker 05:
I understand, is those already done?

[00:38:32] Speaker 06:
The commission has never approved anything like that.

[00:38:34] Speaker 06:
Again, it's a self-certification process.

[00:38:36] Speaker 06:
So somebody knows what may be out there, but there's no instance of the commission approving.

[00:38:41] Speaker 05:
I thought it was in the briefing.

[00:38:42] Speaker 05:
Did you guys deny that in the briefing?

[00:38:44] Speaker 05:
I could be wrong.

[00:38:44] Speaker 05:
They'll tell me if I'm wrong.

[00:38:45] Speaker 06:
They were vague about it.

[00:38:46] Speaker 06:
I don't know what they were referring to.

[00:38:49] Speaker 05:
So you think, gosh, is it idiosyncratic to think that businesses may need to hedge against risk based on certain pieces of legislation passing?

[00:38:58] Speaker 06:
And they can get an idiosyncratic derivative.

[00:39:00] Speaker 06:
They don't need these exchange traded derivatives.

[00:39:03] Speaker 05:
I don't care if they need or not.

[00:39:04] Speaker 05:
I'm asking you whether you think that does not count as a type of commercial interest that these exchanges are designed to serve and that the legislative history referred to, that that's what they wanted to allow people to do?

[00:39:18] Speaker 06:
But we're given no evidence that people who have the ability to engage in those transactions.

[00:39:23] Speaker 05:
So are you announcing here that the commission's view is that there can be nothing political?

[00:39:27] Speaker 05:
So it cannot.

[00:39:28] Speaker 05:
So if people have been doing event contracts on the passage of legislation, those have been unlawful on these same grounds as your position?

[00:39:39] Speaker 06:
No.

[00:39:39] Speaker 06:
No, not at all.

[00:39:40] Speaker 05:
This only applies to- Wait, stop.

[00:39:42] Speaker 05:
So if that is OK, why is that OK?

[00:39:47] Speaker 05:
But so passing bills is OK, but elections are not.

[00:39:52] Speaker 05:
Why is that OK?

[00:39:54] Speaker 06:
The commission has never taken a position on whether anything like that is OK.

[00:39:58] Speaker 06:
I mean, all I can tell you is that the statute applies to- You haven't said it's unlawful.

[00:40:04] Speaker 06:
We haven't said it's on law, no.

[00:40:06] Speaker 05:
But you've never heard of this before that it's happening?

[00:40:08] Speaker 05:
You said that their briefing was fake, so you aren't aware that this has ever happened then?

[00:40:13] Speaker 06:
I've read about it in their brief, but we're not talking about the same kind of product here.

[00:40:18] Speaker 05:
This is a fungible... And what about someone who gets nominated to be the Secretary of Agriculture?

[00:40:24] Speaker 05:
or whether the Secretary of the nominee is going to get confirmed.

[00:40:27] Speaker 05:
I can imagine, again, enormous interest in companies hedging against risk based on that, based on policies somebody's planning to do.

[00:40:36] Speaker 05:
That would not be allowed either, under your view, or it would be?

[00:40:38] Speaker 06:
I can't say that it wouldn't.

[00:40:40] Speaker 06:
I mean, we are talking about the holding here was based on wagering money on an outcome of a contest of others.

[00:40:47] Speaker 05:
What about who's going to be elected the Speaker of the House?

[00:40:50] Speaker 05:
I mean, we've had long contests lately on that.

[00:40:53] Speaker 06:
I can imagine it sounds like a contest of others, but I also want to point out that it does not want to be out.

[00:41:01] Speaker 06:
No, no.

[00:41:03] Speaker 05:
It is a contest of others.

[00:41:05] Speaker 06:
It's a discretionary review.

[00:41:06] Speaker 06:
The statute says may determine is not in the public interest.

[00:41:10] Speaker 06:
So

[00:41:11] Speaker 06:
Anything that's out there that's happening, it does not mean that the commission has given it the seal of approval.

[00:41:17] Speaker 06:
It means that it's possible that the commission would commence a review on that and conclude one way or another.

[00:41:23] Speaker 06:
I don't know.

[00:41:24] Speaker 06:
But the fact that it's out there, it doesn't make it unlawful unless the commission does something about it.

[00:41:31] Speaker 05:
Well, I'm just curious about the basis of your conclusion that businesses would not have economic interests that are affected by who controls

[00:41:41] Speaker 05:
the House or the Senate, Congress generally, or who controls the White House.

[00:41:47] Speaker 05:
I just find that quite surprising.

[00:41:50] Speaker 05:
You would say that when it comes to other matters, political matters, it seems quite clear to me.

[00:41:57] Speaker 05:
But I'm not running a business, so maybe I'm incorrect on that.

[00:42:00] Speaker 06:
Yeah, the order contains a lot of discussion about why how these products are structured does not really lend itself to hedging these risks very well.

[00:42:10] Speaker 03:
Commission's position in the in the order also was that the at least this product.

[00:42:17] Speaker 03:
Doesn't isn't usefully a hedge because the implications of one or another party being in control of one or other of the houses.

[00:42:28] Speaker 03:
are very speculative, that you need to know who's gonna be in the White House, what legislation's gonna be put up, is it gonna pass, how much cohesion is there, that it's just a big and ungainly body.

[00:42:42] Speaker 03:
And so, either maybe, as you said, or as the order says, some hedging, but in general, it didn't seem like a particularly principle function for this product.

[00:42:54] Speaker 03:
Is that the position that you're defending here?

[00:42:57] Speaker 06:
Yeah, I think the order uses the word attenuated or unpredictable or speculative.

[00:43:04] Speaker 02:
Can I ask, was any of this raised in the district court?

[00:43:07] Speaker 02:
Did anybody argue that the commission's finding that these laws conflict with state laws that outlaw gambling on elections, that that's not supported by the record, or that the commission's finding that these are not really used generally to hedge business risk, that's not supported by the record?

[00:43:25] Speaker 02:
Were those things raised or argued before the district court?

[00:43:29] Speaker 06:
They certainly argued that some of these examples that were given in the comment letters showed that this could be a useful hedging tool, but they tended to be hypothetical.

[00:43:41] Speaker 06:
So was it raised at a general level?

[00:43:43] Speaker 06:
Yes.

[00:43:44] Speaker 05:
It has to be hypothetical because it's not operating yet.

[00:43:47] Speaker 05:
I'm sorry, if I could just get an answer to my question.

[00:43:56] Speaker 06:
Right.

[00:43:58] Speaker 05:
It has to be hypothetical, doesn't it?

[00:44:01] Speaker 06:
If it were a hypothetical coming from the person who wants to use the thing, that would fall into a very different category than how she's saying, here's a bunch of reasons why somebody

[00:44:12] Speaker 06:
years.

[00:44:13] Speaker 05:
Presumably they're not creating a product without knowing people want it.

[00:44:17] Speaker 06:
But it's for gambling.

[00:44:19] Speaker 05:
That's the reason.

[00:44:21] Speaker 02:
I guess my line of questioning is more focused on this was presented to the district court as a challenge under the Administrative Procedure Act that what the commission did was arbitrary capricious and the claim that was made was that it was arbitrary and capricious because of the way it

[00:44:39] Speaker 02:
interpreted the statute was contrary to law.

[00:44:41] Speaker 02:
There wasn't a claim that the fact the factual finding that this is not a hedging product.

[00:44:46] Speaker 02:
was not supported by the record, therefore was arbitrary and capricious.

[00:44:49] Speaker 02:
There was not a finding that, there was not a claim that the finding that this is contrary to state laws is not supported by the record.

[00:44:58] Speaker 02:
Were those claims raised?

[00:44:59] Speaker 06:
Yes, they did raise those claims.

[00:45:01] Speaker 06:
The district court didn't get there because of the legal determination.

[00:45:03] Speaker 05:
They're in the CFTC decision, but you actually note that they say the state laws don't, they have a different reading of these state laws in you.

[00:45:10] Speaker 05:
That's even in your

[00:45:11] Speaker 06:
your decision.

[00:45:12] Speaker 06:
Sure, yes, but it was also preserved.

[00:45:15] Speaker 06:
That argument was certainly preserved.

[00:45:17] Speaker 03:
So both of those arguments are preserved.

[00:45:19] Speaker 06:
I think so.

[00:45:20] Speaker 06:
The district court didn't reach it.

[00:45:22] Speaker 03:
I have a question about the irreparable injury.

[00:45:25] Speaker 03:
Is there any evidence as opposed to sort of

[00:45:32] Speaker 03:
reason to believe or hypothesizing maybe from European countries or other countries that have these products on market that short-term manipulations of election betting markets do affect election process or outcomes?

[00:45:53] Speaker 06:
I don't have that.

[00:45:53] Speaker 06:
I don't have that evidence.

[00:45:55] Speaker 03:
And is there evidence that allowing people to stake money on election outcomes

[00:46:00] Speaker 03:
increases, for example, the circulation of false information or the production and circulation of false information.

[00:46:13] Speaker 03:
The interest that people already feel heavily non-monetarily invested in outcomes.

[00:46:20] Speaker 06:
There is the kid rock example.

[00:46:23] Speaker 06:
Again, there are there have been instances.

[00:46:25] Speaker 06:
Again, I point to the University of Missouri article that goes through the problem of fake polls, and it ties it in an interesting way to these other markets, these unregistered.

[00:46:37] Speaker 03:
And then I just had, I think, one more question, which is

[00:46:42] Speaker 03:
Is it the commission's position that if you don't succeed in this case under the gaming or unlawful under state law provisions that the commission would have the authority to promulgate a rule under the enumerated category six, other similar activity determined by the commission by rule or regulation to be contrary to the public interest?

[00:47:11] Speaker 06:
Maybe, but this business about what the word involved means could create a very significant problem.

[00:47:18] Speaker 03:
Spell that out if you would, because I had the same concern.

[00:47:21] Speaker 06:
Right.

[00:47:24] Speaker 06:
I'm thinking primarily about the option of making a rule that says this is similar to the type of activity that is listed.

[00:47:33] Speaker 06:
But if it has to be the activity, if the underlying has to be or relate to the activity, you'd have to make the argument that the underlying was related to the activity, that elections are similar to games.

[00:47:45] Speaker 06:
Maybe you could do it.

[00:47:45] Speaker 06:
Maybe you couldn't.

[00:47:46] Speaker 03:
In other words, a commission would not be able to promulgate a rule based on the notion that elections

[00:47:54] Speaker 03:
are the underlying and elections are somehow contrary to the public interest?

[00:47:59] Speaker 06:
We would not be able to make that case, I am sure.

[00:48:02] Speaker 06:
It would have to be that they are similar in some respect to.

[00:48:05] Speaker 03:
Or that you've prevailed on the involving prong and that event contracts, using event contracts to wager on elections is contrary to the public interest in the commissions.

[00:48:19] Speaker 06:
Correct, yes.

[00:48:20] Speaker 06:
If we have involved back where it belongs,

[00:48:24] Speaker 06:
then we're in a much better position to do what the statute says, which is determine if the agreement contract or transaction involves.

[00:48:33] Speaker 06:
So yes, we would be in a much better position for rulemaking if the error about what the word involved does is correct.

[00:48:41] Speaker 05:
I thought you had a proposed rule out.

[00:48:42] Speaker 05:
Am I totally wrong on that?

[00:48:43] Speaker 06:
You're correct.

[00:48:44] Speaker 05:
What is the status of that?

[00:48:46] Speaker 06:
It is.

[00:48:48] Speaker 06:
It was proposed.

[00:48:50] Speaker 06:
We took comments.

[00:48:51] Speaker 06:
The comment period closed, and it's before the commission, I guess.

[00:48:55] Speaker 05:
Do you have any idea what the time frame is?

[00:48:57] Speaker 05:
I have no idea what the time frame would be.

[00:49:02] Speaker 05:
I still need some textual help.

[00:49:10] Speaker 05:
These agreements those sorry, I'm just going to call it an event contract.

[00:49:14] Speaker 05:
Now you said it's a short term for agreements, contracts or transactions, which is that mess you up if I use event contract as a shorthand for those three words.

[00:49:21] Speaker 06:
The issue that I'm having with that is that transaction means something different than contract.

[00:49:26] Speaker 06:
The district judge thought not, but it's supposed to.

[00:49:30] Speaker 05:
So how?

[00:49:31] Speaker 05:
So describe what they want to sell is event contract.

[00:49:36] Speaker 05:
Yes, right.

[00:49:36] Speaker 05:
I understand the argument that involved is.

[00:49:39] Speaker 05:
broad term and you have your very definitions.

[00:49:45] Speaker 05:
Can you explain to me how one of these, when they sell an event contract, it involves the event contract itself, it's underlying activity.

[00:50:02] Speaker 05:
Which way is the house going to go is not

[00:50:08] Speaker 05:
gambling and violation of state law, right?

[00:50:12] Speaker 05:
You don't want this focus just on the underlying event.

[00:50:16] Speaker 06:
No, no, just the... The event itself.

[00:50:19] Speaker 05:
The event itself, right.

[00:50:21] Speaker 05:
Correct.

[00:50:22] Speaker 05:
The election.

[00:50:23] Speaker 05:
How does it... Just explain to me, very simple terms, how it nonetheless involves, how it's

[00:50:33] Speaker 05:
It's the words that you had, consequence.

[00:50:36] Speaker 05:
How does it come to, even with your definition of involve, how does it become transformed from hedging investment risk to gambling?

[00:50:54] Speaker 05:
And put aside even my questions about how states define, let's assume states define gambling just the way you want to on elections.

[00:51:00] Speaker 05:
How does it become that?

[00:51:01] Speaker 06:
The gambling would be the trading of it.

[00:51:06] Speaker 05:
The trading of the event contract.

[00:51:08] Speaker 06:
Correct.

[00:51:10] Speaker 05:
And that's the same as the underlying, isn't it?

[00:51:13] Speaker 06:
No, it's the transaction.

[00:51:15] Speaker 05:
So.

[00:51:17] Speaker 05:
So just selling the event contract is gambling.

[00:51:23] Speaker 05:
On elections.

[00:51:25] Speaker 06:
Yes.

[00:51:27] Speaker 05:
And they sell an event contract

[00:51:31] Speaker 05:
on another contingency, whether there's going to be a drought.

[00:51:38] Speaker 05:
Is that gambling too?

[00:51:41] Speaker 06:
Gambling in the colloquial sense or what a state might call it?

[00:51:44] Speaker 05:
The exact same way you just defined their event contract is gambling.

[00:51:48] Speaker 05:
Is this gambling too?

[00:51:49] Speaker 06:
No, because it can't capture every contingent event.

[00:51:54] Speaker 05:
Help me, because this is what I'm struggling with.

[00:51:58] Speaker 05:
What makes it gambling under Kalshi event contracts, but not under there's going to be a drought?

[00:52:05] Speaker 05:
My simple brain has not followed that argument closely enough.

[00:52:09] Speaker 05:
Maybe these don't have it.

[00:52:10] Speaker 06:
Because the only thing the commission said about the definition of gaming is that it is wagering money on a contest of others.

[00:52:17] Speaker 06:
So the question of whether there's going to be a drought.

[00:52:20] Speaker 05:
That's not gaming.

[00:52:21] Speaker 05:
Are we talking about gambling?

[00:52:22] Speaker 05:
Because gaming is not always a contest of others.

[00:52:25] Speaker 06:
It's not always a contest of others.

[00:52:28] Speaker 05:
Sorry.

[00:52:29] Speaker 05:
So if it's if it's two people testing, I mean, I just don't understand what you mean a contest of of others.

[00:52:38] Speaker 06:
Well, an election is a contest.

[00:52:41] Speaker 06:
A sporting event is a contest.

[00:52:43] Speaker 06:
A award show is a contest that sort of.

[00:52:46] Speaker 06:
But what it can't cover, and it doesn't need to, based on anything the CFTC did, is just any old contingency.

[00:52:54] Speaker 06:
They don't claim it did.

[00:52:55] Speaker 05:
That's not what the commission said.

[00:52:57] Speaker 05:
Is this bill going, is the president going to sign this bill, or will the Speaker of the House, who's of the same party, talk him out of it?

[00:53:09] Speaker 05:
Or her out of it?

[00:53:10] Speaker 05:
Well, I certainly don't.

[00:53:11] Speaker 05:
Is that a contest of others?

[00:53:14] Speaker 06:
It's not obvious to me that it is.

[00:53:16] Speaker 06:
It doesn't sound to me like it is.

[00:53:19] Speaker 05:
People fighting for different outcomes.

[00:53:23] Speaker 06:
It seems more attenuated to use the same word.

[00:53:27] Speaker 05:
Can you help me with a clear understanding of what contest of others is so that we will know?

[00:53:32] Speaker 05:
Because their argument is under your reading, it's all gambling.

[00:53:38] Speaker 06:
Their argument is that it would capture any contingency.

[00:53:43] Speaker 06:
The only thing that the CFT decided was that Kalshi's contracts were a contest of others.

[00:53:49] Speaker 05:
The statutory language in a way that has, or at least we do, that has integrity.

[00:53:53] Speaker 05:
We can't just say, this is a ticket good for one day, one way only.

[00:53:58] Speaker 05:
So what is the interpretation that you're asking us to say?

[00:54:04] Speaker 05:
under, to say is correct under the statute that captures Calchi and not who's going to be Speaker of the House.

[00:54:12] Speaker 06:
Are you asking me more about what a contest is?

[00:54:14] Speaker 05:
Yeah.

[00:54:15] Speaker 05:
I'm asking, I said what, how do you define contest, contest of others?

[00:54:19] Speaker 05:
Is that your word?

[00:54:20] Speaker 06:
Of others, because it's not in your, you have no control over it.

[00:54:22] Speaker 06:
So a contest of others.

[00:54:24] Speaker 05:
All contingencies presumably are things you have no or very little control over.

[00:54:27] Speaker 06:
Wow.

[00:54:28] Speaker 06:
If you were in the contest,

[00:54:30] Speaker 06:
If you were in the contest, you might have some control over it.

[00:54:33] Speaker 06:
I think that's the idea.

[00:54:34] Speaker 05:
So the point is, wait, so contest is not a contingency because folks might have some control over it?

[00:54:40] Speaker 05:
Is that the difference?

[00:54:42] Speaker 06:
It would not fall within this category of commodities if one party had control over it, excluding commodities.

[00:54:50] Speaker 06:
I believe, I wish I had my CEA in front of me, but that's... I've got your...

[00:54:56] Speaker 05:
your copy that you gave us?

[00:54:58] Speaker 06:
Yes, no, but that's not going to help me with the definition of excluded commodity.

[00:55:02] Speaker 06:
I can tell you that we don't usually think of things where one party has some control over it as similar to what we're talking about here.

[00:55:10] Speaker 05:
OK, so now this is very helpful.

[00:55:11] Speaker 05:
So you're saying that I had not gotten this from the briefs.

[00:55:15] Speaker 05:
And I'm sorry if I missed that.

[00:55:16] Speaker 05:
I hadn't gotten it from the order.

[00:55:18] Speaker 05:
That it's the definition of excluded commodity that does not include the contest of others

[00:55:26] Speaker 05:
Where does others have some control over the outcome?

[00:55:29] Speaker 06:
I would like to sit down and look at my CEA.

[00:55:33] Speaker 06:
I believe that's the case.

[00:55:35] Speaker 06:
I think it has to be out of the party's control.

[00:55:38] Speaker 06:
It's not in the handout that I filed before the argument.

[00:55:45] Speaker 05:
OK, maybe on rebuttal you can help me understand that.

[00:55:48] Speaker 02:
So OK.

[00:55:51] Speaker 02:
Along these lines, what is the difference between the underlying and what

[00:55:56] Speaker 02:
they are involved in, in your view.

[00:55:58] Speaker 02:
Because you're saying that those have to be two different things.

[00:56:00] Speaker 02:
The underlying is what's based on, and what they're involved in is a separate thing.

[00:56:04] Speaker 02:
What's the difference?

[00:56:06] Speaker 06:
The difference is based on is only refers.

[00:56:10] Speaker 02:
What is the underlying?

[00:56:12] Speaker 06:
Right.

[00:56:12] Speaker 06:
Based on.

[00:56:13] Speaker 02:
I'm asking, what is the underlying in this case?

[00:56:15] Speaker 06:
In this case, the underlying would be the elections, those events.

[00:56:21] Speaker 06:
Those are events.

[00:56:22] Speaker 02:
And then what is what this is involved in?

[00:56:25] Speaker 06:
Wagering on them involves gaming.

[00:56:29] Speaker 06:
And that is the purpose of the contracts, which means it involves gaming.

[00:56:36] Speaker 06:
That's what they're for.

[00:56:38] Speaker 05:
And it's wagering because you don't think people are hedging risks?

[00:56:42] Speaker 05:
Or is it wagering because it's a contest of others?

[00:56:46] Speaker 05:
Or what is the reason we think this event contract is wagering but the one about droughts isn't?

[00:56:53] Speaker 06:
I'm sorry.

[00:56:54] Speaker 06:
Forgive me.

[00:56:56] Speaker 06:
I didn't follow the question.

[00:56:56] Speaker 06:
I lost the thread.

[00:56:58] Speaker 05:
So you said that the underlying is the election, what you told Judge Pan.

[00:57:04] Speaker 05:
And this is a problem because it involves gambling.

[00:57:09] Speaker 05:
Right.

[00:57:09] Speaker 05:
And that is because.

[00:57:14] Speaker 05:
That is because.

[00:57:15] Speaker 06:
Oh, it's wagering on a contest of others.

[00:57:17] Speaker 06:
That's it.

[00:57:17] Speaker 06:
I don't mean to keep going in circles.

[00:57:19] Speaker 06:
But those are the state law definitions that we look to.

[00:57:22] Speaker 06:
And this reflects the real world, or the Nevada gaming commission has jurisdiction over election gambling.

[00:57:28] Speaker 06:
It's illegal there.

[00:57:31] Speaker 05:
MGM and FanDuel.

[00:57:31] Speaker 05:
How do you define wager bet under this?

[00:57:34] Speaker 05:
And as I said, that's actually a much more complicated question.

[00:57:36] Speaker 05:
So it's not totally clear that it would ban these.

[00:57:40] Speaker 06:
This is how...

[00:57:43] Speaker 06:
Well, I'm speaking of the subject of election gambling.

[00:57:47] Speaker 06:
I mean, in common parlance, this is gaming.

[00:57:49] Speaker 06:
MGM and FanDuel run these platforms where you can bet on elections overseas.

[00:57:54] Speaker 06:
You can't access them in the US.

[00:58:00] Speaker 05:
OK.

[00:58:01] Speaker 05:
Do you have one question?

[00:58:02] Speaker 02:
I guess I'll just take one last shot at this.

[00:58:04] Speaker 02:
So underlying is the election.

[00:58:07] Speaker 02:
What it's involved in is wagering on the election.

[00:58:11] Speaker 02:
I guess the question we're all trying to get at is, how is wagering on elections different from wagering on other things?

[00:58:19] Speaker 02:
Because if wagering generally is something that's involved in gaming, then every event contract is subject to regulation.

[00:58:28] Speaker 02:
So what's the, I guess, simple answer to that?

[00:58:30] Speaker 06:
The simple answer is that if presented with a case that did not involve a contest of others, I don't think the commission would ever adopt a definition that

[00:58:41] Speaker 06:
swept in every event.

[00:58:42] Speaker 02:
So involved in has to be gaming involving a contest of others.

[00:58:47] Speaker 06:
I imagine there are other like video games are referred to as gaming.

[00:58:52] Speaker 06:
I don't know.

[00:58:52] Speaker 06:
I don't want to limit it to sporting events and beauty pageants and elections.

[00:58:57] Speaker 06:
I can't say people come up with new things all the time.

[00:59:00] Speaker 06:
But what it can include is every event contract.

[00:59:03] Speaker 06:
And there's nothing unusual.

[00:59:04] Speaker 02:
We understand it can include everything.

[00:59:06] Speaker 02:
We're trying to figure out what's in and what's out.

[00:59:08] Speaker 03:
was that we're trying to figure out what's the more deeper logic other than the case specific application of your position.

[00:59:16] Speaker 03:
I thought it had a lot to do from reading the order that it had a lot to do with a fundamental distinction that I gather is historical and just goes way back for the CFTC between business related hedging and

[00:59:35] Speaker 03:
betting in a more speculative gaming kind of way.

[00:59:40] Speaker 03:
And that's whatever sort of rough way that that's what this term is trying to get at.

[00:59:50] Speaker 03:
This distinguishes whatever is fan dual from an exchange traded product.

[01:00:00] Speaker 06:
Yes, and I think there's not much in the way of legislative history.

[01:00:04] Speaker 06:
All there is is this, I understand how courts feel about colloquies, but what was said is that it's to prevent gambling on futures exchanges.

[01:00:12] Speaker 03:
Yeah.

[01:00:13] Speaker 03:
Did you say a moment ago that one can bet on elections on vandal?

[01:00:18] Speaker 06:
Overseas.

[01:00:19] Speaker 03:
Overseas.

[01:00:20] Speaker 03:
But the commission hasn't studied whether that has impact on the elections themselves or on the extent of false or distorting information being injected into electoral processes?

[01:00:35] Speaker 06:
No, and those aren't futures exchanges.

[01:00:37] Speaker 06:
Those are just more traditional casinos.

[01:00:39] Speaker 06:
I gave that as an example to illustrate that this falls in what we traditionally think of in common parlance as gaming.

[01:00:50] Speaker 05:
questions.

[01:00:51] Speaker 05:
Thank you very much.

[01:00:51] Speaker 05:
Thank you.

[01:00:53] Speaker 05:
A little bit over your time.

[01:00:56] Speaker 06:
Reserved three minutes for a bottle, but that seems common.

[01:00:59] Speaker 05:
We'll give you some bottle time.

[01:01:02] Speaker 05:
Mr Roth.

[01:01:12] Speaker 01:
Hey, please.

[01:01:13] Speaker 01:
A court.

[01:01:13] Speaker 01:
Yeah, cover off on behalf of

[01:01:15] Speaker 01:
Your Honours, in order to obtain a stay, the Commission has to show two things, likelihood of success on the merits and that there will be some harm, irreparable harm, absent a stay.

[01:01:27] Speaker 01:
And they can't make either of those showings.

[01:01:29] Speaker 01:
I'd like to start with the merits, if that's alright.

[01:01:33] Speaker 01:
Congress authorised the Commission to block only those event contracts that involve certain specified activities.

[01:01:42] Speaker 01:
Elections are not on the list.

[01:01:44] Speaker 01:
And so their argument comes down to characterizing these event contracts as involving either gaming or unlawful activity.

[01:01:54] Speaker 01:
The problem as to both.

[01:01:56] Speaker 01:
is that the Commission's interpretations of how the statute works and what this language means are so broad that they would sweep in all event contracts, thereby rendering the other enumerated activities superfluous and flipping the whole structure of how this statute works.

[01:02:15] Speaker 01:
And they have not been able to give a limiting principle.

[01:02:18] Speaker 01:
They weren't able to give one below.

[01:02:20] Speaker 01:
And they still are unable, on appeal, to offer one that actually works.

[01:02:25] Speaker 01:
So I'd like to go through them one at a time.

[01:02:28] Speaker 01:
Start with gaming.

[01:02:30] Speaker 01:
We look at dictionary definitions of gaming.

[01:02:34] Speaker 01:
I think the court will find there are basically two.

[01:02:36] Speaker 01:
There's definitions that turn on a game, either playing a game, betting on a game, something to do with a game.

[01:02:45] Speaker 01:
the game-based definitions.

[01:02:47] Speaker 01:
And then there are also definitions that are broader that say, well, gaming is gambling.

[01:02:55] Speaker 01:
Of course, if the first definition is right, these contracts don't involve gaming because there's no game anywhere here.

[01:03:03] Speaker 01:
So they have to rely and turn to the broader definition and say, well, gaming means gambling.

[01:03:10] Speaker 01:
The problem with that, besides the fact that Congress didn't say gambling,

[01:03:14] Speaker 01:
is that gambling is too broad because gambling means wagering on any contingency.

[01:03:20] Speaker 01:
And if it covers wagering on any contingency, then any event contract is going to involve gaming in exactly the same way as these event contracts involve.

[01:03:30] Speaker 05:
Well, the difference is whether you are wagering to, I hate to use that word, that you are.

[01:03:38] Speaker 04:
Staking money.

[01:03:38] Speaker 05:
Staking the event contracts, staking your money to hedge against commercial risk or just to gamble, just to.

[01:03:49] Speaker 05:
The exchange will get turned into an online casino or something.

[01:03:53] Speaker 05:
That seems to be the difference.

[01:03:55] Speaker 05:
That's what I draw from what little legislative history there is here, that what they really wanted to do was they want to allow people to protect against economic risks, but they don't want people to be

[01:04:06] Speaker 05:
taking over the gambling industry.

[01:04:09] Speaker 05:
And that means just letting any member of the public come in and go, I'm throwing in money on this.

[01:04:15] Speaker 05:
And they're not hedging economic risk.

[01:04:16] Speaker 05:
And that's the whole point of these CFTC exchanges.

[01:04:20] Speaker 01:
Right.

[01:04:20] Speaker 01:
So, Your Honor, I think there's definitely something to that.

[01:04:23] Speaker 01:
And I think that supports the ordinary definition of gaming as involving a game.

[01:04:29] Speaker 01:
Because the defining feature of a game

[01:04:31] Speaker 01:
is that it doesn't have economic consequences outside the game itself.

[01:04:35] Speaker 01:
It has no extrinsic consequences.

[01:04:37] Speaker 01:
Whoever wins the Super Bowl, they'll be very happy.

[01:04:39] Speaker 01:
That doesn't have widespread economic consequences.

[01:04:42] Speaker 01:
So it makes perfect sense if Congress wants to say, we only want these markets for things that really have economic effects, to say games are out because games don't have economic effects.

[01:04:55] Speaker 01:
And all of the examples in the legislative history are games, Super Bowl, horse racing, golf tournament.

[01:05:03] Speaker 01:
These are things that don't have economic effects, unlike elections, where it's conceded and undisputed that elections have enormous economic effects.

[01:05:11] Speaker 01:
Billions of dollars are spent on our elections.

[01:05:14] Speaker 03:
You've been very careful and lawyerly about saying that the defining feature of a game is that it doesn't have extrinsic economic consequences.

[01:05:22] Speaker 03:
I mean, they do.

[01:05:24] Speaker 03:
Whether the arena moves to Virginia, whether there are giant purses in some of these games, they make or break all kinds of advertising and sponsorship.

[01:05:33] Speaker 03:
I mean, there's whole economies that

[01:05:36] Speaker 03:
that hinge on games, but there is this, I mean, I think Judge Millett's first question really went to this.

[01:05:43] Speaker 03:
There is this familiar difference between, not that it has economic consequences, but that it is fundamentally an economic activity.

[01:05:54] Speaker 03:
And I think one of the difficulties here, and one of the things that may be animating the, that is surely animating the commission, is that,

[01:06:01] Speaker 03:
Yes, elections have economic consequences, but they are not principally and shouldn't be a business activity.

[01:06:09] Speaker 03:
If that's the case, their definition is an effort to draw that line.

[01:06:17] Speaker 01:
Your honor, I think the problem is, I don't know how you get that from gaming.

[01:06:21] Speaker 01:
I think the definition of gaming does roughly track it because games, you're right, there may be some ancillary economic effects to a game, sort of collateral and attenuated, but that's not, I mean, a game is defined as something you do for amusement or diversion or sport.

[01:06:37] Speaker 03:
Gaming, I mean, I actually, this is where I actually think that, I mean, the district judge was under a lot of time pressure, but the notion that gaming

[01:06:46] Speaker 03:
you know, involves games in the sort of football or monopoly sense seems not quite right to me.

[01:06:53] Speaker 03:
Gaming is a species of wagering of gambling and not all risks are gaming.

[01:07:02] Speaker 03:
But so I don't know.

[01:07:04] Speaker 03:
I mean, it does seem like there's there's some there there for the CFTC and its function as dealing with things like commodities

[01:07:17] Speaker 03:
that are the value of which is you know constantly tracked that has government reporting versus chances of elections or chances that you know so and so will have a next top 100 hit those are very different so let me say a few things about that number one their definition of gaming has never had anything to do with

[01:07:38] Speaker 01:
This their definition of gaming if you look at the order is they say gaming is staking something of value on a contest of others.

[01:07:47] Speaker 01:
That's their definition is nothing to do whether it's the most important economic thing in the world and everyone wants to hedge it.

[01:07:52] Speaker 01:
or has no economic impact.

[01:07:54] Speaker 01:
They talk about economic impact as in a different section of the order dealing with the public interest analysis.

[01:08:01] Speaker 01:
And below, we did raise a very robust challenge to their analysis and findings in that part of the order, which the district court didn't have to reach and didn't reach and didn't comment on.

[01:08:12] Speaker 01:
So I don't think that's actually their theory.

[01:08:14] Speaker 01:
Their theory means staking something on a contest of others.

[01:08:18] Speaker 01:
And I'm happy to talk about why that

[01:08:20] Speaker 01:
can't be drawn from any of the sources they cite and doesn't actually make sense in this context.

[01:08:25] Speaker 01:
But I just wanted to make clear that's not their theory.

[01:08:27] Speaker 01:
The other thing I'll say is the record is full of not just hypothetical, but actual comments from businesses and individuals saying, I face political risk, my business faces political risk, I would buy these contracts to hedge my political risk.

[01:08:40] Speaker 01:
So I don't know why the council was saying there's nothing in the record.

[01:08:44] Speaker 01:
It's just us saying that people are going to do this.

[01:08:46] Speaker 01:
I went through the

[01:08:47] Speaker 01:
the volume that we provide to the court as the appendix to our opposition the other day, it is one letter after another of real companies saying, I have this risk.

[01:08:57] Speaker 01:
I will hedge this risk if I'm given the opportunity to do so.

[01:09:00] Speaker 01:
And that's not surprising because it is established and there's empirical evidence that elections have enormous economic impacts immediately before any legislation is passed, before any confirmations happen,

[01:09:14] Speaker 01:
The election itself causes certain companies to increase in value or decrease in value.

[01:09:20] Speaker 01:
That is the risk.

[01:09:21] Speaker 01:
And so to hedge that risk, you would want to buy an event contract that accommodates that and that accounts for it.

[01:09:27] Speaker 05:
Other than elections, what contests of others would be a more traditionally recognized form of event contract that one would expect to see on the CFTC?

[01:09:40] Speaker 05:
Contest of others narrowing?

[01:09:42] Speaker 01:
So I think you could have, if you're using the colloquial, we're talking about the colloquial definition of a contest of others.

[01:09:48] Speaker 05:
Well, I don't know.

[01:09:51] Speaker 05:
I mean, that's part of the problem.

[01:09:53] Speaker 01:
So we could have, I think a war is a contest.

[01:09:56] Speaker 01:
We know that wars already listed, so it suggests it's not a contest under this one.

[01:10:00] Speaker 01:
You could have a lawsuit and there are even contracts on who's going to win a lawsuit.

[01:10:03] Speaker 01:
You know, Google has a big antitrust case that matters to a lot of people.

[01:10:07] Speaker 05:
There are even contracts on these license exchanges on court case outcomes.

[01:10:11] Speaker 01:
I don't know for sure if there are.

[01:10:13] Speaker 01:
I know there are on legislation because your honor asked about that.

[01:10:15] Speaker 01:
We have done.

[01:10:16] Speaker 05:
I don't know if utilization is a contract.

[01:10:21] Speaker 01:
I think you could have a corporate board, a corporate proxy contest, right, for board control.

[01:10:26] Speaker 01:
That would be a contest of others.

[01:10:28] Speaker 01:
We could certainly hedge on that.

[01:10:31] Speaker 01:
Again, I don't know for a fact if those have been offered, but they could.

[01:10:34] Speaker 01:
I mean, really, just to take a step back, though, this contest of others thing is coming out of nowhere.

[01:10:41] Speaker 01:
That is not any definition of gaming.

[01:10:44] Speaker 01:
Again, the definitions are either narrow to game,

[01:10:46] Speaker 01:
or they're broad to gambling.

[01:10:47] Speaker 01:
There is no middle definition in any dictionary that they point to that says contest of others.

[01:10:52] Speaker 03:
Why is gambling too broad?

[01:10:55] Speaker 01:
Gambling is too broad because gambling is defined in both the dictionaries and the statutes as staking something of value on a contingency that would cover the universe.

[01:11:06] Speaker 01:
If it covers the universe, they've conceded it can't be right if their interpretation covers the universe.

[01:11:11] Speaker 05:
Is hedging economic risk staging something of value on a contingency?

[01:11:16] Speaker 05:
I'm just asking.

[01:11:17] Speaker 05:
Yes, I think it is.

[01:11:19] Speaker 05:
Staging?

[01:11:19] Speaker 05:
Sure.

[01:11:20] Speaker 05:
Are you staking your money on a contingency?

[01:11:23] Speaker 05:
Is buying insurance staking your money on it?

[01:11:26] Speaker 05:
I'm asking about the verb staking.

[01:11:28] Speaker 01:
I think you're doing both.

[01:11:30] Speaker 01:
I think you are hedging your risk by staking money on a contingent event.

[01:11:36] Speaker 01:
That's sort of the premise that at least they're working from.

[01:11:39] Speaker 01:
I don't think that's incorrect.

[01:11:40] Speaker 01:
I think the problem is they're trying to have it both ways because they don't want to be stuck with game.

[01:11:45] Speaker 01:
But they also realize they can't say it's any any time you stake money on a contingency.

[01:11:50] Speaker 01:
So what is the principle that is going to distinguish, you know, that gets us covers us, but doesn't cover the waterfront?

[01:11:58] Speaker 01:
The only thing they've come up with is contests.

[01:12:01] Speaker 05:
That one thinks of as at least, you know, CFTC type contingent events are things that are not contests of others.

[01:12:09] Speaker 05:
They involve multiple forces coming together or, you know, unpredictable forces, whether, you know, some criminal event or a strike or things like that that really are not

[01:12:24] Speaker 01:
Right.

[01:12:25] Speaker 01:
So I think the question then becomes, is that a plausible, is it the correct reading of the word gaming to say gaming means staking some staking money on a game or a contest of others, but nothing else?

[01:12:40] Speaker 01:
Where is that line coming from?

[01:12:42] Speaker 01:
I understand why they're saying it.

[01:12:43] Speaker 01:
They're saying it to sweep in us and not sweep in everything else.

[01:12:47] Speaker 01:
But where does it come from?

[01:12:48] Speaker 01:
It doesn't come from any dictionary.

[01:12:49] Speaker 03:
It comes apart from the Kentucky Derby, PGA Golf, Super Bowl example.

[01:12:54] Speaker 03:
Right.

[01:12:56] Speaker 03:
And a very, very big appetite for gambling on it, from lots and lots of sporting events.

[01:13:07] Speaker 01:
For sure, Your Honor.

[01:13:07] Speaker 03:
And competitive activities.

[01:13:11] Speaker 03:
And that, to them, feels like main,

[01:13:17] Speaker 03:
Gambling, buying of insurance policy is not typically thought of as gambling, buying a future to hedge against your farm exposure to weather is not typically thought of as gaming.

[01:13:36] Speaker 03:
the Super Bowl situation, which was mentioned in the colloquy and your product strike them as things that are different.

[01:13:45] Speaker 01:
Right.

[01:13:45] Speaker 01:
But your honor, those three examples, they're games.

[01:13:49] Speaker 01:
Super Bowl is a game.

[01:13:51] Speaker 01:
Kentucky Derby is a game.

[01:13:52] Speaker 03:
Is a marathon a game?

[01:13:54] Speaker 01:
I think a marathon is certainly close enough to a game to be called a game.

[01:13:58] Speaker 03:
It's something you do.

[01:13:59] Speaker 01:
It's a contest.

[01:14:00] Speaker 01:
It's something you do for diversion, entertainment, or sport.

[01:14:03] Speaker 01:
So it's a game.

[01:14:05] Speaker 01:
Question is, are elections like that?

[01:14:07] Speaker 01:
Or are elections like all the other events?

[01:14:09] Speaker 03:
Elections are not like events that not like insurance or events that happen to my product.

[01:14:18] Speaker 01:
Well, I'm not sure.

[01:14:19] Speaker 03:
I mean, they may be different from both.

[01:14:22] Speaker 01:
They have relevant distinctions from both.

[01:14:24] Speaker 01:
But I think the question is, if we're trying to define gaming,

[01:14:28] Speaker 01:
What is the definition that actually makes sense that has some source?

[01:14:33] Speaker 01:
And I understand if it's going to be.

[01:14:34] Speaker 03:
There are two separate things.

[01:14:35] Speaker 03:
I get it that you're arguing about the source.

[01:14:38] Speaker 03:
But then I thought you were making another argument that it's just not coherent or workable as a kind of functional matter.

[01:14:51] Speaker 01:
Well, let me make both points.

[01:14:52] Speaker 01:
First, I want to make the point that it doesn't have a principled source.

[01:14:55] Speaker 01:
It's not in any dictionary.

[01:14:56] Speaker 01:
It's not in legislative history.

[01:14:58] Speaker 01:
If you look at where they do draw it from, I think it's very telling.

[01:15:01] Speaker 01:
They draw it from some state laws, the state gambling laws, that use the term contest.

[01:15:07] Speaker 01:
And let me give you some context for those because they are so instructive on what is meant and what is not meant.

[01:15:13] Speaker 01:
So there's only a few actually that use it.

[01:15:15] Speaker 01:
Delaware is one example.

[01:15:17] Speaker 01:
It refers to betting on a trial or contest of skill, speed, or power of endurance of human or beast.

[01:15:25] Speaker 01:
Louisiana talks about betting on a game, contest, lottery, or contrivance.

[01:15:31] Speaker 01:
When you look at those statutes in context, I think it's really clear they don't mean contest to cover elections, just like they don't mean trial to cover a jury trial.

[01:15:41] Speaker 01:
That's not what they're talking about.

[01:15:42] Speaker 01:
They're talking about games and things like games.

[01:15:45] Speaker 01:
And the second point I was going to the sort of the policy of it, I do think it makes sense as a way for Congress to have drawn the line to say games as a general matter,

[01:15:57] Speaker 01:
are things we don't want people betting on because they don't have extrinsic consequences.

[01:16:04] Speaker 01:
I'm not saying it's a perfect line.

[01:16:05] Speaker 01:
There's lots of things that people can bet on that aren't games that don't have extrinsic consequences.

[01:16:11] Speaker 01:
And there may be some games that do have extrinsic consequences.

[01:16:15] Speaker 01:
But it's a rough line.

[01:16:16] Speaker 01:
It makes perfect sense.

[01:16:18] Speaker 01:
And the line they're drawing doesn't really make any sense, because why would I be allowed under the statute to offer an event contract on how many times somebody is going to tweet during a presidential debate, but not on who's going to control the House when that actually has significant economic consequences that real people want to hedge?

[01:16:37] Speaker 03:
Wait, there are no contracts on how many times somebody... Yes, there are.

[01:16:40] Speaker 01:
On the exchange?

[01:16:41] Speaker 03:
Yes.

[01:16:43] Speaker 03:
Is that cited in your brief?

[01:16:45] Speaker 01:
There's lots of, I mean, there's too many examples to set in our briefs.

[01:16:48] Speaker 03:
Can you say again?

[01:16:49] Speaker 03:
These are self-certified.

[01:16:51] Speaker 03:
CCMs that do this.

[01:16:56] Speaker 01:
I can't remember exactly who does what, but there are contracts.

[01:17:01] Speaker 01:
It was like, how many times will a certain candidate tweet during a certain period of time?

[01:17:06] Speaker 04:
A certain candidate?

[01:17:08] Speaker 01:
President Trump.

[01:17:09] Speaker 01:
OK, how many times will President Trump tweet during a certain period of time?

[01:17:12] Speaker 01:
I know there are contracts on that.

[01:17:13] Speaker 01:
I don't know who offers them.

[01:17:15] Speaker 04:
That has economic consequences?

[01:17:16] Speaker 01:
No, my point is it doesn't.

[01:17:17] Speaker 01:
But it's not a contest of others.

[01:17:19] Speaker 01:
So my point is, their test.

[01:17:21] Speaker 04:
Not gaming.

[01:17:22] Speaker 01:
No, it's not.

[01:17:23] Speaker 04:
So you could have event contracts.

[01:17:25] Speaker 04:
You could.

[01:17:25] Speaker 01:
And my point is.

[01:17:28] Speaker 05:
But that's not something that's hedging economic risks.

[01:17:31] Speaker 01:
No, it's not.

[01:17:31] Speaker 05:
It's not what this was designed for.

[01:17:33] Speaker 01:
I agree.

[01:17:34] Speaker 01:
My point is.

[01:17:35] Speaker 05:
They couldn't ban it under your theory.

[01:17:37] Speaker 01:
That's right.

[01:17:37] Speaker 03:
Or under the commission's theories.

[01:17:39] Speaker 01:
Under either.

[01:17:40] Speaker 01:
Exactly.

[01:17:40] Speaker 01:
My point is, their test doesn't track the policy.

[01:17:43] Speaker 01:
Our test does track it.

[01:17:44] Speaker 01:
And I take your honor's point, it may not track it perfectly.

[01:17:47] Speaker 01:
But it tracks it, and it aligns with the dictionary definitions that are what we're supposed to be looking at.

[01:17:52] Speaker 03:
To me, the notion that, and I know this is what the district court held, but that gaming is betting.

[01:18:01] Speaker 01:
It's not games.

[01:18:04] Speaker 01:
Your honor, if you look at the dictionary, and we've surveyed a lot of dictionaries,

[01:18:07] Speaker 01:
It's playing games or playing games for stakes.

[01:18:10] Speaker 01:
Those are the most common definitions that you will find in any dictionary.

[01:18:15] Speaker 01:
The common denominator is that there's a game.

[01:18:17] Speaker 01:
If you don't have a game, you definitely don't have gaming, unless you take the broader interpretation of gambling.

[01:18:24] Speaker 01:
And I fully acknowledge there are also definitions that say gaming means gambling.

[01:18:29] Speaker 01:
That cannot work.

[01:18:30] Speaker 03:
The Indian Regulatory Gaming Act involves gambling.

[01:18:35] Speaker 03:
I mean, that's the legal issue.

[01:18:38] Speaker 03:
We can play games anywhere in the United States you want, but you go on to

[01:18:42] Speaker 01:
indian country to have the special legal permission to do gambling right that's absolutely correct and that proves our point because that statute we cited that statute because it uses the term gaming and it defines what is gaming and there are things like blackjack and cards and games that you engage in for amusement or diversion i don't know what that is slot machines slot machines yeah slot machines are a game are they gambling i certainly um think they're a game uh is it

[01:19:11] Speaker 03:
Is it your position that the commission could or could not, or do you have a position on whether the commission could do a role under the other enumerated category six?

[01:19:27] Speaker 01:
To add elections, Your Honor?

[01:19:29] Speaker 01:
Yeah.

[01:19:30] Speaker 01:
I don't have a position.

[01:19:31] Speaker 01:
I'm certainly not going to say they can, because I don't know what their theory would be or their logic, and I don't want to stake out a position.

[01:19:38] Speaker 01:
But they haven't tried.

[01:19:41] Speaker 01:
The proposed rule that they have, Your Honor, does not attempt to exercise their authority under that subsection of the statute.

[01:19:49] Speaker 01:
Their proposed rule merely essentially codifies the reasoning of their order in this case.

[01:19:56] Speaker 01:
So they have not tried to do that.

[01:19:58] Speaker 05:
How do we know that's not what they're doing?

[01:20:00] Speaker 01:
Well, you can look at the proposed rule.

[01:20:02] Speaker 05:
And that's where they get to make rules for?

[01:20:05] Speaker 01:
No, but they don't.

[01:20:06] Speaker 01:
I mean, if the court reads their proposal, their proposal is to define the term gaming.

[01:20:12] Speaker 01:
It's not to add to the list, which is a separate exercise, a separate power they're given under the statute.

[01:20:20] Speaker 01:
So that's just not what they're trying to do.

[01:20:22] Speaker 01:
They could certainly try.

[01:20:23] Speaker 03:
You made some reference in your reading to short-term manipulations.

[01:20:28] Speaker 03:
How quickly are manipulations of election betting markets corrected?

[01:20:37] Speaker 03:
And what do you mean by short term?

[01:20:40] Speaker 01:
So what I mean is the, well, I was referring to their examples, really.

[01:20:46] Speaker 01:
I mean, their examples are situations where there was, you know, the one they give from Polymarket, it was about an hour or two where there was a spike and then it corrected.

[01:20:56] Speaker 01:
That's what we would expect to happen because someone's going to have an economic incentive to bring it back to the price that is the correct market price.

[01:21:04] Speaker 01:
Your honor was asking about this market on a market because that is one of the few actual examples of any manipulation of these markets.

[01:21:14] Speaker 01:
So let me address that.

[01:21:16] Speaker 01:
The situation there was there was a market on the election and then there was a second market on who would be ahead in the first market during a particular window of time.

[01:21:27] Speaker 01:
That is particularly susceptible to manipulation because you can tweak the first one on a short term basis and then try to profit on the second.

[01:21:36] Speaker 01:
So let me make a couple points about that.

[01:21:37] Speaker 01:
One, we have no contracts like that.

[01:21:40] Speaker 01:
We would never offer a contract like that.

[01:21:42] Speaker 01:
Number two, the CFTC would never allow us to offer a contract.

[01:21:45] Speaker 01:
It would never allow that because, and this is important to understand,

[01:21:50] Speaker 01:
This statute that we're talking about is not the CFTC's only authority to regulate event contracts.

[01:21:59] Speaker 01:
They have, there's an entire part of the CFR that sets out 23 core principles that designated contract markets like Kalshi have to follow, including against market manipulation, position limits, all sorts of things that they have authority to regulate.

[01:22:19] Speaker 01:
And they would certainly say that a market on a market is inconsistent with those core principles and could not be offered.

[01:22:26] Speaker 03:
Two questions about that, though.

[01:22:28] Speaker 03:
One is, do you have to have a market on a market or couldn't just the price going up and down, you can arbitrage on the first market?

[01:22:34] Speaker 01:
Yeah, so that's a separate thing.

[01:22:38] Speaker 01:
As in any market, you could try to do like a pump and dump, like I'm going to blow it up and then sell and quickly get out.

[01:22:45] Speaker 03:
And there is a concern raised, at least in theory, if not necessarily with reams of evidence, that that could happen at a really critical time.

[01:22:56] Speaker 03:
when there's the convention or a primary or early voting's about to close or absentee voting's about to close, that you could have a short-term dive that made it look like, oh my gosh, my candidate really is going to lose or win.

[01:23:11] Speaker 03:
And I guess there's a real concern if there is some amount of however short-term that it could have significant impact.

[01:23:22] Speaker 01:
OK, let me give you a couple of responses to that.

[01:23:25] Speaker 01:
But number one, based on the actual evidence of these markets existing in a lot of different countries for a long time, the best they've been able to come up with is this sort of like one to two hour manipulation that we saw on Polly market.

[01:23:45] Speaker 01:
And they don't translate that into any harm to anything else.

[01:23:48] Speaker 01:
The only person who actually lost from that was the person who tried to manipulate because they lost their money because the market worked.

[01:23:54] Speaker 01:
It's not any different than the risk that would exist with any market, because there always is this theoretical potential.

[01:24:01] Speaker 01:
The more robust the market is, the harder it is, and the less susceptible it is to that type of manipulation.

[01:24:06] Speaker 01:
But really, the most important point I think I want to make is that the way to reduce that risk is to allow calcium markets to operate.

[01:24:17] Speaker 01:
Because right now, this activity is happening and being reported to voters

[01:24:22] Speaker 01:
based on markets that are not regulated, that are open to foreign traders, that have no surveillance, that we don't know, there's no transparency, we don't know who's buying, who's selling, it's done in cryptocurrency.

[01:24:35] Speaker 01:
If this was happening on Kalshi's markets, we would have this whole suite of regulatory provisions that apply.

[01:24:42] Speaker 03:
I mean, they make a very powerful argument on that, though, which is regulating the integrity of this market is way outside their ordinary wheelhouse, way outside.

[01:24:53] Speaker 01:
But, Your Honor, not in the sense that Your Honor was asking about, because if somebody were to- Fake news, real news, origin of news.

[01:25:00] Speaker 01:
Let me separate those out for a moment, because there's two different

[01:25:04] Speaker 01:
theories and they're kind of blending them all together okay your honor was asking about the traditional market manipulation you know buying and then selling okay that would be caught in a second on a regulated market we are required to have full-time market surveillance to prevent that type of manipulation and if it was happening on a regulated market the cftc would prosecute that conduct so that itself creates the deterrent impact i do want to separate that out from the

[01:25:32] Speaker 01:
speculation about misinformation.

[01:25:35] Speaker 01:
This is a little bit different, but I think there's an equally powerful response to that, which is, uh, we have a lot of misinformation in the political marketplace as it stands, and that is because elections matter a whole lot.

[01:25:53] Speaker 01:
They don't matter because people are trading on them.

[01:25:56] Speaker 01:
People are trading on them because they matter.

[01:25:59] Speaker 01:
And we have

[01:26:01] Speaker 01:
I think, a real problem with misinformation in the political marketplace.

[01:26:06] Speaker 01:
But a prediction market is one of the most important tools to actually combat the misinformation.

[01:26:12] Speaker 01:
Because the prediction market, the traders have an incentive to verify, to fact check in a way that is not susceptible to arguments about bias.

[01:26:24] Speaker 01:
That's why this is really a powerful tool to expose truth.

[01:26:28] Speaker 01:
Because if somebody comes up with a fake poll, if you're a good trader, you're not going to immediately buy or sell based on that.

[01:26:35] Speaker 01:
You're going to actually investigate it and make a reasoned judgment about it.

[01:26:39] Speaker 05:
And that is a way to actually... That is how businesses will make decisions if they are in it to hedge against economic risk.

[01:26:48] Speaker 05:
But unless you tell me otherwise, I don't know how you police who is coming on.

[01:26:56] Speaker 05:
these exchanges into your exchange to buy, to buy these event contracts, because I assume anyone can do it.

[01:27:08] Speaker 05:
Do you have to have a special license to come in and buy them, or can anybody in the public do it?

[01:27:12] Speaker 01:
You need to open an account, and we have.

[01:27:14] Speaker 01:
OK, please.

[01:27:15] Speaker 01:
Well, no.

[01:27:18] Speaker 01:
Anyone can come and open an account if they are a real person.

[01:27:20] Speaker 01:
We have Know Your Customer regulations.

[01:27:22] Speaker 01:
It's not like we're allowing, you know,

[01:27:24] Speaker 01:
foreigners to come in and open accounts.

[01:27:26] Speaker 01:
They cannot.

[01:27:27] Speaker 01:
But yes, ordinary individuals can come and trade.

[01:27:32] Speaker 01:
Ordinary individuals may also have legitimate hedging needs.

[01:27:36] Speaker 01:
Many of them will not.

[01:27:38] Speaker 01:
And as with any market, there are going to be people who are there for speculation.

[01:27:42] Speaker 01:
And that is critical to the operation of any market because it provides the liquidity.

[01:27:46] Speaker 05:
This is going to be a uniquely attract non-commercial

[01:27:51] Speaker 05:
investors or purchasers, whatever you want me to call them, the people who just want to either express their support for their candidate, to run up the support for their candidate.

[01:28:02] Speaker 05:
I mean, I'm understanding this after the election was called for Joe Biden in 2020, there's a market on which maybe it was predicted that it went up that Trump would win the election because his supporters were pouring in to make that statement.

[01:28:16] Speaker 01:
I would have lost a lot of money, but I'm still struggling, I think, to understand.

[01:28:20] Speaker 05:
These people are doing lots of money, but collectively it's lots of money.

[01:28:23] Speaker 05:
I mean, the problem is, do you have any way of sifting those out?

[01:28:28] Speaker 05:
Do you have any way of ensuring that that individual that's on there isn't actually doing it as a front for a foreign government?

[01:28:35] Speaker 05:
What are your protections against these concerns?

[01:28:40] Speaker 01:
So it depends on what the concern is, Your Honor.

[01:28:42] Speaker 01:
If the idea is, look, people are going to come on, and they're uninformed, and they're going to spend money to favor their candidate,

[01:28:50] Speaker 01:
That could happen.

[01:28:51] Speaker 01:
I'm not sure what the public interest is in that or how it's different from anything else.

[01:28:54] Speaker 05:
This is a really reliable way to get accurate information about elections.

[01:28:58] Speaker 01:
Because that's the aggregation.

[01:28:59] Speaker 01:
Because if somebody comes in and does that... That's what makes up the aggregate.

[01:29:03] Speaker 05:
Their concern is that the aggregate is going to be people who aren't, who are doing this for political reasons, who are doing this for manipulative reasons, that it won't in fact be...

[01:29:13] Speaker 05:
you know, corporations that will be doing, there'll be some of them in there, but it's gonna be wealthy individuals who want to, you know, make sure the next newspaper headline is, wow, look at what happened to Candidate X. Your honor, I think the best I can do in response to that is to say, we have had these contracts for a long time, these markets for a long time.

[01:29:32] Speaker 01:
They're really making it seem like this is this new- Not with this amount of money.

[01:29:36] Speaker 05:
I don't care about that, I just wanna demonstrate.

[01:29:38] Speaker 05:
Can you answer my money?

[01:29:39] Speaker 05:
Yeah, go ahead.

[01:29:40] Speaker 01:
So two things on the money point.

[01:29:42] Speaker 01:
It is true that predicted has lower position limits.

[01:29:44] Speaker 01:
Polymarket has no position.

[01:29:47] Speaker 01:
So it's not true that there aren't.

[01:29:49] Speaker 01:
There's a billion dollars trading right now on US elections, on polymarket, no position limits and no regulation.

[01:29:56] Speaker 01:
And they think that advances the public interest somehow, as opposed to having that trading happening in a regulated way.

[01:30:02] Speaker 01:
The second point about the amount of money is the amount of money is partly a solution to the concerns about manipulation, because the market that is least susceptible to manipulation is the one that is more liquid and large, because then an individual has less of a less capacity to influence it.

[01:30:20] Speaker 01:
So it kind of cuts both ways on the size.

[01:30:23] Speaker 01:
But the third point on the position.

[01:30:27] Speaker 01:
But let me address that, because that came up in the first half as well.

[01:30:32] Speaker 01:
The commission has authority over position limits.

[01:30:34] Speaker 01:
The position limit thing is, in my view, a complete red herring.

[01:30:37] Speaker 01:
In three years of dealing with the commission on these, they never said, well, our problem is the position limit is too high.

[01:30:42] Speaker 01:
If you brought that down, it would be fine.

[01:30:44] Speaker 01:
And they've never said that, and they've never tried to say that, and they've never tried to use their regulatory authority over position limits to deal with these.

[01:30:50] Speaker 05:
You would agree they could just knock it down to the $1,000 or something, so you're like predicting?

[01:30:54] Speaker 01:
They have the power to do that.

[01:30:55] Speaker 01:
It's under.

[01:30:57] Speaker 01:
Well, I'm sure.

[01:30:57] Speaker 05:
And you would have no objection or no challenge to them doing that.

[01:31:00] Speaker 01:
Well, I can't speculate, but I will say that it can't be arbitrary and capricious, but I will say I'll just point, Your Honor, because it's 17 CFR 38.300 and 301.

[01:31:12] Speaker 01:
That's their position limits.

[01:31:14] Speaker 01:
17 CFR 38.300 and what follows, that's the core principle dealing with position limits.

[01:31:25] Speaker 02:
What you're doing here, exactly what Polymarket does except

[01:31:29] Speaker 02:
with a $100 million limit and United States people can participate.

[01:31:33] Speaker 01:
And all the regulations.

[01:31:35] Speaker 02:
No, I understand that, but just what you're trying to do.

[01:31:37] Speaker 01:
I know it'll be regulated.

[01:31:39] Speaker 01:
Yeah, materially.

[01:31:40] Speaker 01:
I mean, I don't know if they have a congressional control contract.

[01:31:43] Speaker 01:
What we're dealing with here is congressional control.

[01:31:46] Speaker 01:
They may have that.

[01:31:46] Speaker 01:
I'm not sure.

[01:31:47] Speaker 01:
They have markets on all sorts of elections.

[01:31:51] Speaker 01:
The difference is it's unregulated.

[01:31:52] Speaker 01:
There's no checks.

[01:31:54] Speaker 02:
And you think that that's a large liquid efficient market?

[01:31:58] Speaker 01:
pretty large.

[01:31:59] Speaker 01:
Yeah, I mean, $1 billion is a lot.

[01:32:01] Speaker 01:
Again, it may depend on which market because they have different contracts trading.

[01:32:05] Speaker 01:
I don't want to make a categorical statement, but it's pretty big.

[01:32:09] Speaker 02:
Is there any evidence that activity on polymarket has affected election integrity in any market?

[01:32:16] Speaker 02:
Because I guess it's not just United States for polymarket.

[01:32:18] Speaker 03:
Has anybody studied and come to the opposite?

[01:32:20] Speaker 01:
There have been extensive studies of these prediction markets, and they're in the record.

[01:32:24] Speaker 01:
They're cited in the record.

[01:32:26] Speaker 01:
I don't have a

[01:32:27] Speaker 01:
I don't have a page number because it's really across the whole thing.

[01:32:30] Speaker 01:
But there are, we provided the court with the parts of the administrative record that include the comment letters from professors at Harvard and MIT and Columbia who have studied prediction markets and all of whom support this.

[01:32:43] Speaker 01:
In fact, the blog post that they cite in their brief is written by two individuals who filed letters in support of these contracts and said they are a good thing that the commission should permit.

[01:32:52] Speaker 05:
I know I can't hear you off from question digit.

[01:32:57] Speaker 05:
Isn't there one more thing that's different than that is that these markets have the US government imprimatur on them, and that it just seems inherently against public interest to have the US government imprimatur and officially putting out on the market a device for gambling on its own elections.

[01:33:20] Speaker 05:
And I say gambling as to all those people who are not hedging economic risk.

[01:33:23] Speaker 01:
Your honor, it has a certain imprimatur

[01:33:26] Speaker 01:
in the sense that it is regulated by the commission.

[01:33:31] Speaker 01:
I think that's a good thing, because it means there are checks on what can happen.

[01:33:35] Speaker 01:
It means there is transparency.

[01:33:38] Speaker 01:
It's not anything goes.

[01:33:39] Speaker 01:
There are tools available.

[01:33:40] Speaker 01:
I think that's important and a positive from a public interest perspective, not a negative.

[01:33:44] Speaker 01:
Now, could Congress make the judgment, look, we don't like this.

[01:33:48] Speaker 01:
It doesn't feel right.

[01:33:49] Speaker 01:
We don't like it.

[01:33:50] Speaker 01:
We shouldn't allow it.

[01:33:51] Speaker 01:
Sure.

[01:33:51] Speaker 01:
And if they added elections to the list, then we would not be here.

[01:33:55] Speaker 01:
making a rational basis challenge to that finding.

[01:33:59] Speaker 01:
But a lot of people don't feel that way.

[01:34:02] Speaker 01:
Well, then we may have a fight about that, but they haven't.

[01:34:07] Speaker 01:
I think for present purposes, though, I don't see how that can really qualify as irreparable harm sufficient for a stay because it's completely non falsifiable.

[01:34:15] Speaker 01:
Whether that's a good thing for the public interest, there are a lot of people who think

[01:34:19] Speaker 01:
It's a great thing for the public interest and that it actually boosts civic engagement in our democracy to have people have the ability to participate in these markets.

[01:34:28] Speaker 03:
Not civic engagement, it's commercial engagement.

[01:34:32] Speaker 01:
No, but my point, Your Honor, is that there is research that is cited in the comments that the ability to participate commercially has the effect of increasing civic participation, because people now have more of a stake in the election.

[01:34:48] Speaker 03:
And if you wanted us to read, I mean, I've seen the comments.

[01:34:53] Speaker 03:
But if there's something that you think is particularly of all the comments that you cite, what would you read?

[01:34:59] Speaker 01:
I'm going to have to work.

[01:35:01] Speaker 03:
Professor.

[01:35:02] Speaker 01:
Well, it depends which point you're most interested in.

[01:35:05] Speaker 01:
So the point about hedging.

[01:35:06] Speaker 03:
I'm interested in the question whether there's anything affirmatively showing that short-term manipulations of election betting markets do not affect election outcomes.

[01:35:20] Speaker 03:
That's what I'm interested in.

[01:35:21] Speaker 01:
affirmatively showing that it doesn't.

[01:35:23] Speaker 03:
Looking at all this has been going on, this is happening, this is happening.

[01:35:28] Speaker 01:
I know what there is for sure in the record is comments, and we cite these in the briefing to this core, the stay briefing, that the risk of actual manipulation, short term market manipulation happening is very remote on a substantial liquid market like this.

[01:35:46] Speaker 01:
That is definitely cited.

[01:35:48] Speaker 01:
from economists and experts.

[01:35:49] Speaker 03:
But that's sort of modeling.

[01:35:51] Speaker 03:
We've seen this in a country that allows it and where it hasn't gone haywire.

[01:35:57] Speaker 01:
I'll have to check the right sites because there is a lot and it's on a lot of different points.

[01:36:02] Speaker 01:
So there's also comments about

[01:36:04] Speaker 01:
the economic impacts and the reasons for hedging, which Your Honour was asking about earlier.

[01:36:09] Speaker 01:
We have the economic professors commenting on that and experts.

[01:36:14] Speaker 01:
So there's a lot in the record that is supportive.

[01:36:18] Speaker 01:
They only cite like three letters in the record and they're from members of Congress who say, well, we don't like this.

[01:36:24] Speaker 01:
We think this is bad.

[01:36:25] Speaker 01:
There are other members of Congress who weighed in and said, we think this is great.

[01:36:29] Speaker 01:
Um, so, but I think if you're, if the court looks overall at the, at the record, there is really abundant support empirically for this.

[01:36:37] Speaker 01:
And of course, I'll just, it's their burden at this point.

[01:36:40] Speaker 01:
Okay.

[01:36:40] Speaker 01:
We're not any more at the point of challenging their finding as arbitrary and capricious where we have to show they got it wrong.

[01:36:47] Speaker 01:
We did win this case in the district court and it was not a rush.

[01:36:51] Speaker 01:
Actually, I almost forget it.

[01:36:53] Speaker 01:
It was not a rush.

[01:36:54] Speaker 01:
We intentionally did not ask for a PI, so we didn't want to rush the process.

[01:36:58] Speaker 01:
We wanted the judge to be able to study this, look at the materials, look at the statute, understand it, and reach a decision in time for this election site.

[01:37:06] Speaker 01:
And so at this point, they have to convince the court with non-speculative evidence that this is going to be a problem.

[01:37:13] Speaker 01:
And they just haven't.

[01:37:14] Speaker 03:
I'm just responding to your pointing to this is happening, this is happening, it's not caused this guy to fall.

[01:37:21] Speaker 03:
Yeah, yeah.

[01:37:22] Speaker 03:
You know, ubiquitous, large amount of money, and it stands to reason that

[01:37:28] Speaker 03:
you know, there would be more money if your product is approved.

[01:37:33] Speaker 03:
I mean, do you have any idea how much of the hundreds of millions that have been put into election betting on polymarket, like how much of that has been contributed by US persons?

[01:37:44] Speaker 01:
I don't have a number.

[01:37:45] Speaker 01:
We know that it's widely reported that it's happening in large volumes, but I can't give you a number because we don't have access to that information.

[01:37:51] Speaker 02:
What happened when you opened your market?

[01:37:53] Speaker 01:
for this short period of time?

[01:37:54] Speaker 01:
Last Thursday, we opened it.

[01:37:56] Speaker 01:
There was trading.

[01:37:57] Speaker 01:
It was about $50,000 in total of trading.

[01:38:01] Speaker 02:
How long was it open?

[01:38:03] Speaker 01:
It was open about eight hours total, but there was no advertising.

[01:38:07] Speaker 03:
And there was a whole period of 10 years when this public interest review was just gone away, but there wasn't any election outcome contracting during that time, as far as you know?

[01:38:20] Speaker 01:
I'm not aware of any that happened on a regulated exchange.

[01:38:24] Speaker 01:
The point about the availability of these other exchanges and the fact that this has been going on in the UK and Australia and New Zealand and Canada and so on, I think it is telling about their inability to point to anything.

[01:38:37] Speaker 01:
So that's the reason I bring it up is to say it's not as if this is completely hypothetical and we all have to be guessing.

[01:38:44] Speaker 01:
It's not, it has been going on for a long time, large amounts of money and they still are not able to point to anything other than this market on market one hour manipulation that we talked about and this law review article that speculates that a poll may have been fake and maybe it was done to affect a small market on predicted.

[01:39:06] Speaker 01:
It's not evidence of anything.

[01:39:08] Speaker 03:
You make an assertion that if that contracts

[01:39:12] Speaker 03:
specifically are presumptively valid and not subject to the commission's public interest review.

[01:39:18] Speaker 03:
And the basis for that is just that there's a special rule and that, so for everything else.

[01:39:26] Speaker 01:
Yeah, well that you can self-certify the compliance.

[01:39:29] Speaker 03:
Self-certifying compliance allows you to list and this is- Does the self-certification require you to make a public interest case?

[01:39:36] Speaker 01:
No, no, the self certification requires us to certify that we applied with the statute and the regulations, but it no longer requires a public interest case.

[01:39:45] Speaker 01:
There's no the right they took out the statute used to require upfront review for the public interest of every, every contract, they got rid of that as part of our point.

[01:39:55] Speaker 03:
Well, they got rid of their active certification.

[01:39:57] Speaker 03:
I haven't read the whole statute to know that they got rid of you having to satisfy yourself and put it in writing what the public interest is.

[01:40:06] Speaker 03:
But you're saying that that's been cleared away.

[01:40:07] Speaker 01:
That's my understanding.

[01:40:08] Speaker 01:
Yes, that's correct.

[01:40:10] Speaker 01:
When we did the self-certification and submitted the contracts, there was a long appendix that includes all of the analysis of these and many other points.

[01:40:20] Speaker 01:
It sounds like we don't make the case there because

[01:40:24] Speaker 01:
You know, we did expect the commission to go down this path and review it.

[01:40:28] Speaker 01:
So we did do that.

[01:40:29] Speaker 01:
But that's not how the statute works.

[01:40:30] Speaker 01:
The statute gives them the power to do this review only for the enumerated contracts.

[01:40:36] Speaker 01:
And just to jump back to the merits, you know, their most fundamental problem is their interpretations of the statute would reverse that and turn us to agree.

[01:40:46] Speaker 02:
Can you address, I guess, subsection one, activity that's unlawful under any federal or state law?

[01:40:52] Speaker 01:
Yes, OK.

[01:40:53] Speaker 01:
Thank you, Your Honor, because I think there was just a little bit of confusion over that in the first half.

[01:40:58] Speaker 01:
So there are two ways that you can understand that part.

[01:41:05] Speaker 01:
Our way is the event, the underlying event, has to relate to something unlawful.

[01:41:15] Speaker 01:
That's our that's how we that's what we think the statute means when it says the contract trans agreement contract or transaction involves activity.

[01:41:23] Speaker 01:
We think the reference is to the underlying event.

[01:41:26] Speaker 01:
The underlying event has to have that relationship to something unlawful.

[01:41:30] Speaker 01:
So for example, you can't have a contract on what will the murder rate be in D.C.

[01:41:35] Speaker 01:
this year.

[01:41:37] Speaker 01:
that the underlying is murders in D. C. It relates to unlock.

[01:41:40] Speaker 01:
That's unlawful.

[01:41:41] Speaker 03:
We don't want people profiting from, uh, isn't the underlying their official D. C. P. D. Murder statistics, which are not on law, but it relates to.

[01:41:54] Speaker 01:
So this is why involving we actually agree with the commission and the district court involved is broader than based on.

[01:42:00] Speaker 01:
It doesn't mean it has to be the unlawful thing.

[01:42:03] Speaker 01:
It has to relate to the unlawful.

[01:42:06] Speaker 01:
So that relates to the unlawful thing.

[01:42:09] Speaker 01:
Their interpretation is, even if the underlying event has no relationship to anything unlawful, if trading the contract would be unlawful, then it's triggered under one.

[01:42:24] Speaker 01:
That's the disagreement on the interpretation of the statute.

[01:42:28] Speaker 01:
I think there are two important reasons why our interpretation is right and theirs has to be wrong.

[01:42:36] Speaker 01:
The first is looking at this in context given the activities that follow.

[01:42:44] Speaker 01:
So terrorism, assassination, and war.

[01:42:47] Speaker 01:
The only way a contract could involve terrorism, assassination, or war is if the underlying event has something to do with terrorism, assassination, or war, not trading the contract.

[01:43:00] Speaker 01:
Trading the contract is never going to be terrorism, or assassination, or war.

[01:43:04] Speaker 01:
So if you look at these together,

[01:43:08] Speaker 01:
There's a very strong inference that the work that involves is doing in the statute is tying the underlying event to the listed activities.

[01:43:20] Speaker 01:
On their view, it's toggling back and forth between what it's referring to from one to the next, which is not a very good way to interpret a statute.

[01:43:32] Speaker 01:
The second problem.

[01:43:33] Speaker 05:
How is it talking?

[01:43:34] Speaker 05:
I mean, you say you agree that it has to be related to.

[01:43:39] Speaker 01:
Yes.

[01:43:39] Speaker 05:
So how is there toggling?

[01:43:42] Speaker 01:
Oh, because they're saying, for number one, activity that's unlawful, they're saying the trading the contract has to be unlawful or relate to something unlawful.

[01:43:53] Speaker 01:
Then we go to terrorism, assassination, war.

[01:43:55] Speaker 05:
Yeah, I think what they're saying is that the contract involves, just to get to the election gambling theory,

[01:44:01] Speaker 05:
Involves in that a consequence.

[01:44:05] Speaker 05:
That's one of the definitions of all that they list is consequence of a consequence of having those event contracts is that people are able to gamble on elections.

[01:44:17] Speaker 05:
They're not because there's no way

[01:44:21] Speaker 05:
It's not self-limited to people who are interested in hedging against economic risk, the way droughts are, or there's gonna be a hurricane.

[01:44:28] Speaker 05:
There's no way to limit it to the commercial function that these exchanges... I agree, Your Honor, I agree.

[01:44:38] Speaker 01:
I don't think we're disagreeing with Your Honor's point.

[01:44:41] Speaker 01:
They're... I'm not talking, they're just... No, no, from one...

[01:44:45] Speaker 01:
to two, three, and four.

[01:44:47] Speaker 01:
That's what I mean by toggling.

[01:44:49] Speaker 01:
So for number one, their test is figure out if it's a transaction that involves unlawful activity.

[01:44:56] Speaker 01:
We're going to ask if buying and selling the contract entails or relates to unlawful activity.

[01:45:02] Speaker 05:
Or has as a consequence.

[01:45:03] Speaker 01:
Or has as a consequence unlawful activity.

[01:45:05] Speaker 01:
Then for two, three, and four, we're going to ask whether the event that the contract is on relates to terrorism, relates to assassination, relates to war.

[01:45:16] Speaker 01:
So they're toggling between what we're looking at.

[01:45:18] Speaker 01:
Are we looking at?

[01:45:18] Speaker 03:
They're not really toggling.

[01:45:19] Speaker 03:
They're just saying either or both.

[01:45:21] Speaker 03:
And some of them, we don't want you contracting on things that are tragic and horrific.

[01:45:28] Speaker 03:
But if you look at six other similar activity determined by the commission, by rule of regulation, to be contrary to the public interest, the commission is not going to be determining

[01:45:40] Speaker 03:
that elections are contrary to the public interest, they're going to be determining whether using event contracts to wager on elections is contrary to the public.

[01:45:52] Speaker 03:
And if you think about it more broadly, they can't determine whether marijuana legalization is contrary to the public.

[01:45:58] Speaker 03:
And they're not doing public interest determinations on anything except

[01:46:04] Speaker 03:
the potential for trading in a contract that might be subject to their regulation, right?

[01:46:09] Speaker 03:
So that strongly supports their view.

[01:46:12] Speaker 01:
So first of all, I'm actually not so sure that's right.

[01:46:14] Speaker 01:
They've never done it, so it's all kind of hypothetical as to what they would be talking about.

[01:46:18] Speaker 01:
But unlawful activity, terrorism, assassination, and war, those are all things that are bad.

[01:46:24] Speaker 01:
And the Congress, legislative history suggests we don't want people trading, profiting on things that are bad because that is just, it looks bad for people to profit from war.

[01:46:33] Speaker 03:
So I could definitely.

[01:46:35] Speaker 03:
But it's basically a similar activity determined by the commission to be contrary to the public interest.

[01:46:41] Speaker 03:
The commission's going to be determining what that, that, you know,

[01:46:48] Speaker 03:
large sugar drinks and their market success is contrary to the public interest or not?

[01:46:52] Speaker 03:
No, it's not their bailiwick.

[01:46:55] Speaker 03:
It's the trading, right?

[01:46:57] Speaker 01:
Your honor, again, because they haven't done it, it's hypothetical.

[01:47:00] Speaker 01:
I'm really not sure that's right.

[01:47:03] Speaker 01:
Do you have a different way of doing that?

[01:47:06] Speaker 01:
Yeah, I think they could say, if you took number one out, for example, and you had terrorism, assassination, war, I think they could say, well, murder is not on there.

[01:47:15] Speaker 01:
We don't want contracts on murder either, even if it's not an assassination.

[01:47:18] Speaker 01:
So we're going to add murder to the list.

[01:47:20] Speaker 01:
I think that would be perfectly fine.

[01:47:23] Speaker 03:
But what about if you didn't take one out?

[01:47:25] Speaker 03:
And so you don't have, looking to state or federal law, what they already deem to be illegal.

[01:47:31] Speaker 03:
The commission is supposed to make a determination about underlying activities that are contrary to public interest, and on that ground, do a public interest review of contracts

[01:47:46] Speaker 01:
I do think that's what the legislative history suggests, because the common thread was, we don't want people profiting from underlying events that are bad for public policy.

[01:48:00] Speaker 05:
That's just not what it says.

[01:48:02] Speaker 05:
Number one is activity that is unlawful under any state law.

[01:48:08] Speaker 05:
And so say there's a state that says no medical marijuana.

[01:48:12] Speaker 05:
OK, most states do.

[01:48:14] Speaker 05:
But there is a state that says there are two.

[01:48:16] Speaker 05:
I don't know what the number is.

[01:48:16] Speaker 05:
Even no medical marijuana.

[01:48:19] Speaker 05:
Bad things.

[01:48:20] Speaker 05:
It's about bad things.

[01:48:22] Speaker 05:
Congress is doing something different here.

[01:48:24] Speaker 01:
Right?

[01:48:25] Speaker 01:
Well, that state clearly thinks it's a bad thing.

[01:48:26] Speaker 05:
It's trying to make sure these exchanges don't take over and hijack areas traditionally regulated by the states.

[01:48:34] Speaker 05:
I don't know what else it means.

[01:48:36] Speaker 05:
In fact, all they have to do is find one state

[01:48:39] Speaker 05:
Activity that is unlawful under one state law.

[01:48:41] Speaker 01:
Right, I think your honest example is good.

[01:48:43] Speaker 05:
It doesn't have to be inherently bad.

[01:48:44] Speaker 05:
I'm just reacting to you.

[01:48:45] Speaker 05:
It all has to be inherently bad.

[01:48:47] Speaker 01:
OK, well, look.

[01:48:48] Speaker 05:
Gaming isn't.

[01:48:49] Speaker 05:
I mean, I guess people have different opinions about that one.

[01:48:52] Speaker 05:
It's kind of a weird list.

[01:48:53] Speaker 05:
It's like any state law, and then horrible, horrible, horrible, and then gaming.

[01:48:59] Speaker 05:
I just don't know what this list is.

[01:49:02] Speaker 01:
The way I read the first one, at least, is

[01:49:05] Speaker 01:
Yes, if the federal government or a state has prohibited something, then we at least want the commission to be able to have the power to say, we're not going to allow an event contract on that thing.

[01:49:17] Speaker 01:
Because some state thinks it's really bad.

[01:49:21] Speaker 05:
So medical marijuana is a good thing.

[01:49:23] Speaker 05:
What are these exchanges meant to be with their imprimatur of governmental supervision and approval, and it's not to step on

[01:49:32] Speaker 05:
There's federalism interest here.

[01:49:34] Speaker 05:
I mean, the gaining is presumably a lot of federalism interest and tribal interest.

[01:49:38] Speaker 05:
And then you've got the sort of assassination, war, and terrorism.

[01:49:42] Speaker 05:
And then there's respect again for state laws and number one.

[01:49:45] Speaker 05:
It feels to me that I just was reacting to your argument that this is all really, really bad stuff.

[01:49:52] Speaker 05:
It's just not true.

[01:49:53] Speaker 05:
It's a more complicated list, at least as I read it.

[01:49:56] Speaker 05:
Well, let me let me here.

[01:49:57] Speaker 05:
And I guess the only coherence I can see.

[01:49:59] Speaker 05:
Sorry, if I could just finish this.

[01:50:01] Speaker 05:
The only coherence I can see is that they are trying to have these exchanges remain.

[01:50:07] Speaker 05:
Commercial exchanges hedging.

[01:50:12] Speaker 05:
risk and not suddenly become online casinos, displacing, by the way, gaming authorized or not by states, or forums that sort of encourage activities directly or not that are unlawful.

[01:50:29] Speaker 05:
Otherwise, I don't know what the unlawful under state law is doing, because the event contract will never be the activity that's unlawful under state law.

[01:50:36] Speaker 05:
It's always going to be about creating market interests about things.

[01:50:41] Speaker 01:
Right.

[01:50:41] Speaker 01:
But I think there's lots of examples of event contracts on events that have a relationship to an unlawful activity, like my murder rate example, or whether a particular CEO is going to be arrested for insider trading this year.

[01:50:57] Speaker 01:
That relates to unlawful activity on insider trading.

[01:51:01] Speaker 01:
How many pounds of illegal drugs are going to be seized at the border this month?

[01:51:07] Speaker 01:
It's illegal activity.

[01:51:09] Speaker 01:
It relates to illegal activity.

[01:51:11] Speaker 01:
So they can say, we don't want to market on that.

[01:51:13] Speaker 01:
There's illegal activity going on.

[01:51:15] Speaker 01:
What it doesn't mean is that they can look to the state laws that prohibit trading, prohibit gambling, and saying, oh, well, states prohibit gambling.

[01:51:29] Speaker 01:
which they define to be staking something of value on any contingent event, and then subjecting them to public interest review, because that does cover every event contract.

[01:51:43] Speaker 02:
And that cannot be direct.

[01:51:45] Speaker 02:
Can you address a specific state law that says betting on elections and how that could be

[01:51:52] Speaker 02:
set apart from just general gambling.

[01:51:54] Speaker 01:
They try to set it apart.

[01:51:55] Speaker 01:
I just don't understand where that comes from in the statute, logically or legally.

[01:51:59] Speaker 01:
The statute says unlawful under any federal or state law.

[01:52:05] Speaker 01:
So you have some state laws that say you can't wager on any contingency.

[01:52:09] Speaker 01:
You have some that say you can't wager on particular competencies.

[01:52:12] Speaker 01:
You have some that say you can't wager on elections.

[01:52:16] Speaker 01:
From the perspective of the statute, I don't understand what the difference is between those things.

[01:52:20] Speaker 03:
Well, we talked about it.

[01:52:21] Speaker 03:
Can you finish, please?

[01:52:22] Speaker 01:
Yeah, yeah, sure.

[01:52:25] Speaker 01:
So if you're applying the same logic in those situations, I don't see the difference between a broadly worded.

[01:52:32] Speaker 02:
So the argument is that general contracts are preempted and specific ones may not be if they promote a specific state interest, such as election integrity.

[01:52:43] Speaker 01:
So Your Honor, the preemption works differently.

[01:52:46] Speaker 01:
The preemption comes into play if you have trading on regulated exchange.

[01:52:54] Speaker 01:
State law cannot prohibit it because CFTC has exclusive jurisdiction over that trading activity.

[01:53:02] Speaker 01:
So any contract that is offered on an exchange, regulated exchange, cannot be touched by state law, whether it's a general state law or a narrow state law.

[01:53:14] Speaker 03:
It makes no difference.

[01:53:14] Speaker 03:
Isn't that kind of cart before the horse, though?

[01:53:16] Speaker 03:
They're not yet traded.

[01:53:17] Speaker 01:
They're not.

[01:53:18] Speaker 01:
No, that's right.

[01:53:19] Speaker 03:
When the commission is doing this inquiry, they're not.

[01:53:22] Speaker 01:
Correct.

[01:53:23] Speaker 03:
That argument doesn't make any sense to me.

[01:53:24] Speaker 01:
Well, it's their argument, Your Honor.

[01:53:27] Speaker 01:
It doesn't make sense to me.

[01:53:27] Speaker 01:
No, no, it's your argument.

[01:53:28] Speaker 03:
Because you're saying their argument can't make any sense because there are also laws that outlaw event contracts and their whole business's event contracts.

[01:53:38] Speaker 03:
Therefore, it doesn't make any sense.

[01:53:40] Speaker 03:
But I think it's one thing to say, yeah, of course we don't mean to have a... I mean, he said he's not going to take the whole authority to look at every and any

[01:53:50] Speaker 03:
event contractors because some state laws think that the business we're in is not worthwhile, but we're going to look at laws that express a concern about betting on elections or something that is an objective and non-commissioned determined

[01:54:09] Speaker 03:
reflection of a state saying this is unlawful or the federal government saying this is unlawful.

[01:54:14] Speaker 03:
And that's the kind of thing that makes sense for them to say, okay, these are the subcategory of things that Congress told them to do public interest.

[01:54:20] Speaker 05:
And that is a judgment that our exchanges are not going to make our exchanges something that preempts that state interest.

[01:54:29] Speaker 01:
Your Honor, I just I don't understand how that comes out of the language.

[01:54:35] Speaker 01:
The language says, does it involve activity that is unlawful under any federal or state law?

[01:54:40] Speaker 01:
Any.

[01:54:42] Speaker 01:
So if the question we're asking is focused on, as they say, trading the contract, would trading the contract involve activity that is unlawful under any federal or state law?

[01:54:55] Speaker 01:
That covers every event contract.

[01:54:58] Speaker 01:
Because trading any event contract is unlawful under at least the laws of 29 states

[01:55:05] Speaker 01:
that prohibit any event contracts.

[01:55:10] Speaker 01:
So yes, he can stand up and say, oh, we wouldn't actually do that.

[01:55:13] Speaker 01:
Don't worry.

[01:55:14] Speaker 01:
But as a matter of statutory interpretation, that's not how it works.

[01:55:17] Speaker 01:
He needs to have a limiting principle that carves out something from something else that doesn't sweep the universe into number one, in which case, why do we even have two, three, four, five?

[01:55:27] Speaker 05:
The statute allows the commission

[01:55:32] Speaker 05:
when it finds something that's illegal under state law, and these event contracts involve that.

[01:55:39] Speaker 05:
They get to make an upfront call about whether we want this, this is what our exchanges are designed for, are they gonna serve the purposes of these exchanges, or are they gonna be something different?

[01:55:53] Speaker 05:
And in making that decision is the federal interest in having this opportunity to hedge against risk strong enough that it warrants

[01:56:04] Speaker 05:
displacing the state law judgments.

[01:56:07] Speaker 05:
And maybe that does mean that someone could come in someday and say, OK, we're going to get rid of all event contracts.

[01:56:14] Speaker 05:
I mean, there'll be more blowback than anyone can imagine.

[01:56:18] Speaker 05:
It'll probably take care of the problem itself.

[01:56:20] Speaker 05:
But if not, then there'll be challenges to it that this was meant to have subcategories here, not the entire category.

[01:56:27] Speaker 05:
You'll make those arguments.

[01:56:28] Speaker 05:
But that up when we find some of this illegal interstate law and it's implicated by what's happening with these contracts in their view, these event contracts, they get to make that call.

[01:56:39] Speaker 01:
That is their position.

[01:56:40] Speaker 01:
They are.

[01:56:40] Speaker 01:
They are.

[01:56:41] Speaker 01:
Yeah, they're exactly right.

[01:56:43] Speaker 01:
Their position is they can subject any event contract to public interest review.

[01:56:48] Speaker 01:
Doesn't mean they're going to ban them all.

[01:56:50] Speaker 05:
They can invite any event contract and that's not normally a language of the state laws that is unlawful.

[01:56:56] Speaker 05:
The first show is unlawful under any federal or state law.

[01:56:59] Speaker 05:
Right.

[01:56:59] Speaker 01:
Which all of them are.

[01:57:00] Speaker 05:
Any state law.

[01:57:01] Speaker 05:
They try to find one state law to ban something.

[01:57:03] Speaker 02:
Does your position depend upon it being traded on an exchange?

[01:57:06] Speaker 02:
Because that's what you've been saying.

[01:57:07] Speaker 02:
And it could be unlawful under a state law for me just to bet with my sister

[01:57:12] Speaker 02:
It has nothing to do with an exchange, and this would involve illegal.

[01:57:16] Speaker 01:
State laws never talk about exchanges.

[01:57:18] Speaker 01:
The federal preemption comes into play if you're on an exchange.

[01:57:21] Speaker 01:
The state laws are general.

[01:57:24] Speaker 01:
They have nothing to do with exchanges.

[01:57:25] Speaker 01:
They're just saying you can't stake something of value.

[01:57:27] Speaker 02:
So why isn't this an agreement, contract, or transaction that involves an activity that's unlawful, with that activity being betting on elections?

[01:57:38] Speaker 01:
Because in our view,

[01:57:40] Speaker 01:
In order to avoid the consequence that every event contract falls within number one, you have to read the statute to be asking the question whether the underlying event involves unlawful activity.

[01:57:56] Speaker 01:
And the underlying event here is elections.

[01:57:59] Speaker 01:
Elections do not implicate unlawful activity.

[01:58:01] Speaker 02:
But why can't it be betting on elections?

[01:58:04] Speaker 01:
Because then it is not any different from any other

[01:58:09] Speaker 05:
This is because of the public interest finding they're going to.

[01:58:11] Speaker 01:
That puts the cart before the horse, Your Honor.

[01:58:14] Speaker 05:
We've got public interest in that this is not commercial hedging of risk.

[01:58:18] Speaker 05:
There's no way to contain it to that by its very subject matter, whereas the drought or a hurricane is going to hit the whatever crop in whatever state, that's a different thing.

[01:58:30] Speaker 05:
But just by its very subject matter, you said this is a big civic interest in this.

[01:58:36] Speaker 05:
It involves every

[01:58:37] Speaker 05:
every person in the country.

[01:58:39] Speaker 01:
So that goes to the back end inquiry of does it advance or impair the public interest in order to subject a contract to that determination and that analysis, they first have to find that it fits into one of these categories.

[01:58:59] Speaker 05:
Yes, I get that.

[01:59:00] Speaker 01:
And so their position amounts to their reading of the statute amounts to

[01:59:05] Speaker 01:
Every event contract is subject to public interest review.

[01:59:09] Speaker 01:
That was the law before Congress amended it.

[01:59:13] Speaker 01:
So that would read this statute to revert back to the system that was in place before the statute was enacted, where they had to approve every event.

[01:59:22] Speaker 01:
They had to review.

[01:59:24] Speaker 02:
But why isn't betting on elections in a separate category?

[01:59:26] Speaker 02:
Because it's not relying on general state laws that say you can't bet on contingent events.

[01:59:33] Speaker 02:
They probably have that too.

[01:59:35] Speaker 02:
But they've decided to also have a special

[01:59:39] Speaker 02:
role, at least one state, that you can't bet on elections.

[01:59:43] Speaker 02:
And that is motivated not by the public policy.

[01:59:46] Speaker 02:
We don't want people just betting on stuff, but on this public policy about election integrity.

[01:59:51] Speaker 02:
Why can't that be a separate category from other things that are bet upon?

[01:59:55] Speaker 02:
Because there's a separate state law that deals with that.

[01:59:59] Speaker 01:
So you're on episode.

[02:00:00] Speaker 01:
Some of them are separate.

[02:00:01] Speaker 01:
Some of them are not separate.

[02:00:02] Speaker 01:
All we need is one.

[02:00:03] Speaker 01:
Yeah.

[02:00:04] Speaker 01:
But I don't understand how that can be justified under this language.

[02:00:09] Speaker 01:
Because the language doesn't say.

[02:00:10] Speaker 05:
Sometimes the states will say we're doing it for public interest reasons, for election integrity reasons.

[02:00:15] Speaker 05:
And that's a very type of thing that the statute is.

[02:00:18] Speaker 01:
So let's.

[02:00:19] Speaker 05:
Nevada, which is like the gambling capital of the United States says, but not elections.

[02:00:25] Speaker 05:
And you're saying that the commission can't say,

[02:00:29] Speaker 01:
that and it's it's not one state it's a lot of states that have even just separate provisions on election laws a lot of states have a ban gambling on elections a lot of states ban 29 states ban wagering on any contingency the question is can we distinguish

[02:00:47] Speaker 01:
the broad, no gambling state laws from the narrow ones.

[02:00:50] Speaker 01:
And I think that's what your honor's question is going to.

[02:00:52] Speaker 01:
So just let's imagine a hypothetical.

[02:00:54] Speaker 01:
Let's say a state said, and some states have this too, no wagering on agricultural things, OK, because it's going to affect our agricultural price support system and integrity of our agricultural industry.

[02:01:09] Speaker 01:
We don't want wagering.

[02:01:12] Speaker 01:
That would somehow call for a different conclusion.

[02:01:14] Speaker 01:
That would allow the commission to step in and subject that to public interest review.

[02:01:17] Speaker 01:
I don't understand.

[02:01:18] Speaker 02:
So here's what I think is a weakness in your argument, which is that, say, if there is a state law, any state law in this country that says, do not bet on election outcomes, and the commission says, well, that involves an activity that's unlawful of any state, that seems to be perfectly in line with the statutory language.

[02:01:39] Speaker 02:
And your argument is that means they can do it on everything else, but not necessarily.

[02:01:43] Speaker 02:
Say there's a state that doesn't have any of these laws, let's say you can't gamble on anything else, then this is cabot and contained.

[02:01:55] Speaker 01:
But Your Honor, as you said, you just need one.

[02:01:57] Speaker 01:
There are 29, and these were in place when Congress enacted them.

[02:02:01] Speaker 02:
So walk me through this.

[02:02:02] Speaker 02:
If they say an agreement contract or transaction that involves unlawful activity under a state law that says no betting, how would you take that and translate that into betting on the tweets?

[02:02:16] Speaker 01:
Yeah, it would mean they would subject that.

[02:02:18] Speaker 01:
Why?

[02:02:18] Speaker 02:
Because there's no specific law about tweets.

[02:02:21] Speaker 01:
No, but it covers betting on anything.

[02:02:24] Speaker 02:
No, it doesn't.

[02:02:24] Speaker 02:
It covers betting on elections.

[02:02:27] Speaker 02:
The state law that we're relying on only covers betting on elections.

[02:02:30] Speaker 02:
So how does that lead to covering betting on tweets?

[02:02:34] Speaker 01:
That one doesn't.

[02:02:36] Speaker 01:
But if you can make that argument about that statute,

[02:02:39] Speaker 02:
I don't understand why they- But it doesn't go to betting on anything.

[02:02:41] Speaker 02:
If it doesn't go to tweets, it doesn't go to anything.

[02:02:44] Speaker 02:
It doesn't translate.

[02:02:45] Speaker 02:
The narrow doesn't go to the broad.

[02:02:46] Speaker 02:
The broad would go to the narrow.

[02:02:48] Speaker 02:
But here we've got the narrow state law that talks about betting on elections.

[02:02:53] Speaker 02:
And how does that mean you can now regulate everything?

[02:02:57] Speaker 03:
So I think it's because all the commission needs to point to is a state law that renders

[02:03:08] Speaker 03:
unlawful the thing that they say this actually refers to.

[02:03:15] Speaker 03:
And there are, we know it's not disputed that some state laws outlaw all event contracts.

[02:03:20] Speaker 03:
I have just a technical question for you that will show my ignorance.

[02:03:24] Speaker 03:
Are all the contracts, undesignated contract markets, event contracts, or are like futures or derivative contracts, are those something different?

[02:03:36] Speaker 03:
Like is it corn hedging, is it classic old commodities

[02:03:41] Speaker 03:
So Mark, is that an event contract or is it something?

[02:03:44] Speaker 01:
Um, it's something else, your honor.

[02:03:46] Speaker 03:
Event contracts are these things where we're looking at what we only offer event contracts.

[02:03:52] Speaker 05:
So Kelsey's a designated contract and I look to define an event contract for us.

[02:03:56] Speaker 01:
It's, it's a, uh, a contract that is contingent upon an occurrence or extent of an occurrence.

[02:04:04] Speaker 01:
Uh,

[02:04:05] Speaker 01:
That's the definition.

[02:04:06] Speaker 01:
So an occurrence is an event.

[02:04:09] Speaker 01:
Is something going to happen or not?

[02:04:10] Speaker 01:
It is not also that?

[02:04:15] Speaker 01:
You could have an event contract that looks right that says, will the price of oil be above x on a certain date?

[02:04:23] Speaker 01:
It's just structured a little differently, I think, from a traditional future where you're promising to buy or sell at that price.

[02:04:31] Speaker 01:
They overlap.

[02:04:32] Speaker 01:
But these are events.

[02:04:33] Speaker 01:
What we're dealing with here is that.

[02:04:35] Speaker 05:
Is something going to happen or not?

[02:04:36] Speaker 01:
Right.

[02:04:37] Speaker 01:
Is something going to happen or not?

[02:04:38] Speaker 01:
It's yes or no.

[02:04:39] Speaker 01:
It's binary.

[02:04:40] Speaker 01:
Pays out if it has.

[02:04:40] Speaker 05:
And I'm probably going to be able to pay X or Y. And is there a?

[02:04:49] Speaker 03:
You don't have the site for the definition, do you?

[02:04:56] Speaker 01:
7 USC 1A bracket 9.

[02:05:01] Speaker 01:
and 19 are the two definitions.

[02:05:03] Speaker 01:
It's the definition section of the act that defines the excluded commodity to include essentially an event.

[02:05:11] Speaker 01:
So an occurrence, extent of an occurrence or contingency that is beyond the control of the parties and associated with economic consequences.

[02:05:24] Speaker 05:
The election is or is not beyond the control of the parties?

[02:05:28] Speaker 01:
It is beyond the control of the parties to the contract, so parties to the contract cannot determine the result of the election.

[02:05:35] Speaker 05:
The parties to the contract are Kalshi and the person... They're not Kalshi.

[02:05:38] Speaker 01:
Kalshi's not a party to any of the contracts.

[02:05:39] Speaker 01:
Kalshi doesn't buy and sell.

[02:05:40] Speaker 05:
It's just whoever's buying one side.

[02:05:42] Speaker 01:
Yes, you need trade.

[02:05:43] Speaker 01:
Exactly.

[02:05:43] Speaker 01:
Which is another reason why it's not gambling.

[02:05:45] Speaker 01:
There's no house.

[02:05:46] Speaker 05:
If it's beyond the control, they all get to vote.

[02:05:47] Speaker 01:
What's that?

[02:05:48] Speaker 05:
If it's beyond the control, they get to vote.

[02:05:50] Speaker 01:
I think that the thinking is, I think it is beyond the control of the parties to the contract because their one vote is not going to impact, is not going to determine the outcome.

[02:06:02] Speaker 01:
Certainly when you're talking about congressional control.

[02:06:05] Speaker 05:
I live in a state where not that long ago there was a state governmental contest where they literally had to, because they had an actual tie vote, they had to, I forget if they did a toss of a coin or something like that, it was crazy.

[02:06:18] Speaker 05:
Well, your honor, I think it happened.

[02:06:20] Speaker 05:
Yeah, I was contest, but some we're getting to pretty close margins in a lot of jurisdictions these times.

[02:06:25] Speaker 01:
I don't bear enough.

[02:06:25] Speaker 01:
Your honor.

[02:06:26] Speaker 01:
I think the consequence if it was deemed to be within the control of parties, I think the consequence would be that the commission doesn't have any jurisdiction over it because it's not

[02:06:33] Speaker 01:
within the scope of their power.

[02:06:36] Speaker 01:
But they've just never taken that position.

[02:06:39] Speaker 01:
So we haven't briefed it.

[02:06:41] Speaker 03:
And they haven't argued it.

[02:06:43] Speaker 03:
1A9?

[02:06:44] Speaker 03:
That's the definition of commodity.

[02:06:45] Speaker 01:
Right.

[02:06:46] Speaker 01:
And then 19.

[02:06:46] Speaker 01:
1A9.

[02:06:47] Speaker 03:
19.

[02:06:47] Speaker 03:
Yeah.

[02:06:48] Speaker 01:
There's two definitions in there.

[02:06:51] Speaker 02:
So why isn't it correct that the commission can regulate whatever?

[02:06:58] Speaker 02:
Under this statute, they can look at

[02:07:01] Speaker 02:
make the finding about agreements, contracts, or transactions involving activity that's unlawful under a state law that says no gambling on elections.

[02:07:10] Speaker 02:
And what you're positing is that if you do that, then you have to look at all the state laws that say any, I guess, wagers on contingencies.

[02:07:19] Speaker 02:
That's not really before us right now.

[02:07:21] Speaker 02:
Like maybe if they tried to do that, there would be some limit.

[02:07:24] Speaker 01:
That's not what they're relying on.

[02:07:27] Speaker 01:
Well, no, but I think the logic of the statutory interpretation is before the court.

[02:07:32] Speaker 01:
The court has to understand what the statute means.

[02:07:35] Speaker 01:
And again, our position involves

[02:07:39] Speaker 01:
It requires you to look at whether the event, subject matter of the contract, has the connection with the activity, just like we would do for terrorism or assassination.

[02:07:48] Speaker 02:
That's one way of looking at it, but it doesn't have to be the way you look at it in every case all the time.

[02:07:52] Speaker 01:
Right.

[02:07:53] Speaker 01:
And that's their position.

[02:07:54] Speaker 01:
And my point is, if the court were to adopt that interpretation of the statute,

[02:08:01] Speaker 01:
The inevitable consequence as a matter of law would be that every event contract is subject to public interest review.

[02:08:10] Speaker 01:
Because they can make the same argument, exactly the same argument, for every event contract.

[02:08:16] Speaker 01:
They just need to point to one state law that says you can't wager on contingencies.

[02:08:20] Speaker 01:
They've got 29.

[02:08:22] Speaker 01:
And all of a sudden, we have five more categories that play no role.

[02:08:26] Speaker 01:
They would never have to rely on them.

[02:08:28] Speaker 01:
And instead of having a presumptive

[02:08:31] Speaker 01:
presumptively allowed subject to review for these narrow categories.

[02:08:35] Speaker 01:
We have no, they can make a public interest determination as to anything.

[02:08:38] Speaker 05:
Look, maybe that realizes risk.

[02:08:40] Speaker 05:
Do you do all 29 of those statutes?

[02:08:44] Speaker 05:
clearly apply to, or do they carve out, or do lots of them carve out business transactions, commodity exchanges?

[02:08:52] Speaker 05:
Because when I looked, it was extremely small, the number that didn't do that.

[02:08:57] Speaker 05:
In fact, the two states that ban all gambling have carve-outs for business transactions and commodity contracts.

[02:09:04] Speaker 01:
Many of them have carve outs.

[02:09:06] Speaker 05:
OK, so that's not an issue because it won't be illegal under those states laws.

[02:09:10] Speaker 05:
So tell me how many states.

[02:09:11] Speaker 05:
This is your risk.

[02:09:12] Speaker 05:
Your risk is they're going to be able to do this thing.

[02:09:16] Speaker 05:
How many states ban all gambling and have no carve out textually, regulatorily or through court decision for business contracts, event contracts, things like this that are hedging economic risk?

[02:09:31] Speaker 01:
I'll try to answer it as best as I can, Your Honor.

[02:09:34] Speaker 01:
I believe that many of the carve outs actually tie back to the federal scheme of regulation because what they're basically saying is you're not allowed to do this, but of course we're not trying to interfere with the federally regulated CFTC regulated exchanges.

[02:09:50] Speaker 01:
Those are not covered.

[02:10:04] Speaker 01:
It doesn't break it out, Your Honor.

[02:10:05] Speaker 01:
I'm sorry.

[02:10:06] Speaker 01:
I don't have the specific state by state.

[02:10:08] Speaker 05:
But there's no state that actually does that.

[02:10:12] Speaker 05:
And there's no concern.

[02:10:14] Speaker 01:
Your Honor, not all of them, as Your Honor pointed out, not all of them do have the carments.

[02:10:19] Speaker 05:
Right, but then we still have to, but then they have, you know, how that's the difficulty here.

[02:10:23] Speaker 05:
It's because we don't know how they use vague terms and we don't know how they're interpreted.

[02:10:29] Speaker 05:
So they may not in the face of a lot have something a lot have it in the face of the statute.

[02:10:35] Speaker 05:
It could well be, I didn't have the time to find that there are state regulations that carve it out or court decisions.

[02:10:43] Speaker 05:
And so you're telling us about your main argument is, if you read it that way,

[02:10:50] Speaker 05:
Half the United States can be blocked by the commission.

[02:10:54] Speaker 05:
And if that's not accurate under the law, and I'm betting your position would be if they were to say, oh, these states do it, and they have these carve-outs, you'd go, no, they don't.

[02:11:03] Speaker 05:
And in fact, you argue that to the commission, that a lot of these states don't actually extend to these activities.

[02:11:10] Speaker 05:
So I don't know how you can have it both ways.

[02:11:13] Speaker 05:
I don't know that.

[02:11:16] Speaker 05:
I don't know that there is an effect the concern that you're raising and I'm.

[02:11:21] Speaker 01:
You're right.

[02:11:22] Speaker 01:
I understand the point.

[02:11:24] Speaker 01:
Let me make.

[02:11:25] Speaker 01:
Let me say two things.

[02:11:26] Speaker 01:
Number one, their argument on involves is that it's very broad.

[02:11:30] Speaker 01:
It doesn't have to actually be illegal.

[02:11:32] Speaker 01:
needs to just have a relationship entail consequence.

[02:11:35] Speaker 01:
They're positing a pretty loose relationship between the thing and the unlawful.

[02:11:40] Speaker 05:
There are so many cases that say involved as a broad.

[02:11:43] Speaker 01:
It is.

[02:11:43] Speaker 01:
I'm agreeing.

[02:11:44] Speaker 01:
And I'm saying, so if you take this sort of broad approach, I think it would be sufficient for them to come in and say, this contract, this event contract,

[02:11:55] Speaker 01:
entails or relates to wagering on a contingency, and therefore it's close enough for us to trigger category one and subject it to public interest review.

[02:12:05] Speaker 05:
They have to show it violates some state law.

[02:12:07] Speaker 01:
They don't have to show it violates.

[02:12:08] Speaker 01:
They would have to show it relates to, involves.

[02:12:10] Speaker 05:
It makes it something that's outlawed by a state.

[02:12:12] Speaker 01:
Well, they try to muddy it up and say it only has to be loose.

[02:12:16] Speaker 05:
They have their definition of involves that doesn't have to be the same activity, the underlying activity.

[02:12:21] Speaker 05:
But I haven't heard them say, he'll tell me if I'm wrong, that in fact, if it's lawful under state law, they can still apply.

[02:12:27] Speaker 05:
If they can't find a single state that has outlawed it, they can still apply Roman one.

[02:12:32] Speaker 05:
Is that what you just said to me?

[02:12:34] Speaker 05:
Because they might think, well, it's around me.

[02:12:37] Speaker 01:
It's around the edges, exactly.

[02:12:38] Speaker 01:
But Your Honor, look, the other thing I'll just offer on this is I apologize that I don't have a 50-state survey here for you.

[02:12:45] Speaker 01:
It's because they didn't make this argument.

[02:12:47] Speaker 01:
They did not make this argument.

[02:12:49] Speaker 05:
This was not their decision.

[02:12:51] Speaker 05:
They have all these long citations.

[02:12:53] Speaker 05:
And then they actually have a footnote that says, you say, actually, the state laws don't cover this.

[02:12:57] Speaker 01:
Right.

[02:12:57] Speaker 01:
But, Your Honor, for purposes of their argument in seeking a stay,

[02:13:04] Speaker 01:
and their arguments below.

[02:13:06] Speaker 01:
This wasn't something they said.

[02:13:07] Speaker 01:
And so it's not something that I'm, I don't have the information.

[02:13:10] Speaker 01:
I'd be happy to do that and provide it to you because I think the follow on questions would be, all right, how many of these state laws have car bugs?

[02:13:18] Speaker 01:
How many don't?

[02:13:19] Speaker 01:
And then with respect to the election betting, how many of those are subject to the same car votes?

[02:13:24] Speaker 01:
Because often they're related.

[02:13:25] Speaker 01:
They're tied together.

[02:13:26] Speaker 05:
Elections almost uniformly use the language wager or bet.

[02:13:30] Speaker 05:
And so they will then cross-reference.

[02:13:32] Speaker 01:
Right, they cross-reference.

[02:13:33] Speaker 05:
So maybe it does not.

[02:13:34] Speaker 05:
That will, again, have backouts.

[02:13:36] Speaker 01:
And then so then, Your Honor, perhaps the consequence of that is that these contracts also don't involve unlawful activity because they're subject to the same car votes.

[02:13:46] Speaker 01:
Because they do have economic effects and they are.

[02:13:49] Speaker 01:
Yes, but it's their burden.

[02:13:50] Speaker 01:
It's their burden to seek this extraordinary relief.

[02:13:53] Speaker 05:
They only need one state.

[02:13:54] Speaker 05:
And if I can find one state, it doesn't have an express carve out.

[02:13:59] Speaker 05:
And there's been no showing.

[02:14:02] Speaker 05:
There could be.

[02:14:02] Speaker 05:
There's only so much I can do.

[02:14:05] Speaker 05:
I've got other things on my day job.

[02:14:07] Speaker 05:
Regulations or court decisions that clarify.

[02:14:09] Speaker 05:
But there are, in fact, some that have no textual carve outs.

[02:14:12] Speaker 05:
So they've got that.

[02:14:15] Speaker 01:
Well, Your Honor, look, we had extensive litigation in the district court on the merits of this.

[02:14:22] Speaker 01:
They never made this argument.

[02:14:23] Speaker 05:
Did your submissions to the agency, because they reference you making these arguments, did those already include citations to states?

[02:14:30] Speaker 01:
There are many citations, but as Your Honor intuited, some of these statutes are complicated because there's different sections that cross-reference each other and so on.

[02:14:41] Speaker 05:
At least there's an open question whether the big problem of 29 states actually exists.

[02:14:45] Speaker 01:
Yeah, well, look, I take your honor's point.

[02:14:49] Speaker 01:
That wasn't their attempt to distinguish the two.

[02:14:52] Speaker 01:
It just wasn't.

[02:14:53] Speaker 01:
And so I can't give you the answer of, yes, it's Pennsylvania that does it.

[02:14:58] Speaker 01:
That wasn't their argument.

[02:14:59] Speaker 01:
They are proffering what they told the district court, because the district court asked them repeatedly, how do you distinguish?

[02:15:05] Speaker 01:
If this is in, why isn't everything in?

[02:15:08] Speaker 01:
And the court can look at the transcript.

[02:15:11] Speaker 01:
Their argument over and over again was, well, we didn't decide that.

[02:15:14] Speaker 01:
We didn't decide that yet.

[02:15:16] Speaker 01:
That's not a limiting principle.

[02:15:18] Speaker 01:
That's just, well, maybe next time we'll come up with something different.

[02:15:23] Speaker 01:
I think they need to do more in order to explain why this doesn't swallow the rule, because swallowing the rule is an untenable interpretation.

[02:15:30] Speaker 03:
And they didn't do that.

[02:15:32] Speaker 03:
It's interesting, though.

[02:15:32] Speaker 03:
I mean, just to put this in perspective, this is about whether they're going to do a public interest review, a threshold for public interest review.

[02:15:40] Speaker 03:
And you sound really confident that your product is very much in the public interest.

[02:15:48] Speaker 03:
So it seems to me that it makes sense that Congress would have been pretty sweeping or a little bit loose, let's say, in what it says.

[02:15:58] Speaker 03:
If the commission has time and energy, it can do a public interest review on these categories.

[02:16:05] Speaker 01:
Right.

[02:16:06] Speaker 01:
Well, they used to be empowered to do it on everything.

[02:16:09] Speaker 03:
And then they were empowered to do it on nothing.

[02:16:10] Speaker 01:
And then they were empowered to do it on nothing.

[02:16:11] Speaker 01:
And this was the compromise.

[02:16:12] Speaker 01:
When you say everything, you mean all event contracts or all futures and everything?

[02:16:16] Speaker 01:
All event contracts.

[02:16:17] Speaker 01:
And then it was nothing.

[02:16:20] Speaker 01:
And then Congress said, no, these ones are the ones we want.

[02:16:22] Speaker 01:
So we need to figure out something that doesn't capture everything that fits into these categories.

[02:16:28] Speaker 01:
And I don't think they've done that.

[02:16:31] Speaker 01:
And it's both because of the swallowing the rule problem and because of the alignment of

[02:16:37] Speaker 01:
how the work that involved is playing with each of these categories.

[02:16:41] Speaker 01:
I know your honor wasn't persuaded.

[02:16:42] Speaker 01:
Can I try a hypothetical?

[02:16:43] Speaker 03:
On number six is the thing that it feels to me like it pretty explicitly is referring to what kind of contracts would be regulated, not what kind of underlying.

[02:16:57] Speaker 01:
Yeah, again, I don't know.

[02:16:58] Speaker 01:
It's an open question because it's never been used.

[02:17:01] Speaker 01:
Can I offer a hypothetical to help explain

[02:17:05] Speaker 01:
our point about the language.

[02:17:07] Speaker 01:
So we use this in the district court briefing.

[02:17:09] Speaker 01:
If you had a movie theater that had a sign policy that said, adult accompaniment of children required for any screening that involves horror, science fiction, drug use, or violence.

[02:17:25] Speaker 01:
Clearly, when they talk about the screening involving horror or involving science fiction, they're talking about the subject of the movie.

[02:17:34] Speaker 01:
What is being played?

[02:17:36] Speaker 01:
respect to drug use, linguistically that could mean, well, if people are taking drugs during the movie, we want adults there.

[02:17:45] Speaker 01:
But in context, you would never read it that way because the other two, the first two are clearly references to the content of the movie.

[02:17:55] Speaker 01:
That's really what we're trying to, point we're trying to make here.

[02:17:58] Speaker 01:
When you're talking about contracts that involve terrorism,

[02:18:01] Speaker 01:
You can only be talking about contracts whose underlying event relates to terrorism.

[02:18:07] Speaker 01:
Same thing for assassination.

[02:18:08] Speaker 01:
Same thing for war.

[02:18:09] Speaker 01:
So when you look at that as a whole, it would be very strange if Congress was expecting the unlawful category to play a fundamentally different role in the statutory analysis that the commission is doing.

[02:18:26] Speaker 05:
I'm telling you why this is, again, just a statutory thing.

[02:18:31] Speaker 05:
It sounds like they already can review all contracts, right?

[02:18:37] Speaker 05:
Because in connection with the listing of an agreement, the commission may determine that such agreements, contracts.

[02:18:45] Speaker 05:
So they're looking at them all as they are looking at them all.

[02:18:48] Speaker 05:
And then as they're looking at them as they come through, they go, wait, this one involves ABC.

[02:18:53] Speaker 01:
No, your honor, respectfully, I think that's not right.

[02:18:56] Speaker 01:
The commission may determine that they are contrary to public interest if they involve one through six.

[02:19:02] Speaker 05:
Yeah, I'm just talking about all of that before.

[02:19:05] Speaker 05:
It sounds like in connection with the listing and then there's no limitation on the agreements, contracts or transactions.

[02:19:11] Speaker 05:
In fact, in connection with the listing, they can look at that are based on contingency.

[02:19:18] Speaker 05:
They can look, right?

[02:19:19] Speaker 05:
And then if they see that it involves one of these things,

[02:19:24] Speaker 05:
I mean, they may not look much.

[02:19:25] Speaker 05:
Maybe this is the quick notice that you give before doing it.

[02:19:29] Speaker 01:
Yeah, we give notice.

[02:19:29] Speaker 05:
Look at everything beforehand.

[02:19:31] Speaker 01:
So they don't look at, I mean, we self-certify.

[02:19:33] Speaker 05:
You may not, but they have the authority to.

[02:19:35] Speaker 01:
Well, they don't have the authority to determine that they're contrary to the public interest.

[02:19:39] Speaker 05:
I understand.

[02:19:40] Speaker 01:
They can look at whatever they want, but the question is, what can they do about it?

[02:19:43] Speaker 01:
And the thing they can do about it, what's that?

[02:19:46] Speaker 05:
OK, but then it sounds like, but they do have the authority here to look at everything that's coming on and make sure it fits.

[02:19:53] Speaker 05:
It doesn't come, it doesn't.

[02:19:55] Speaker 01:
run to follow one of these categories and yes they don't have to they could let it go even if it does it's correct that's correct there's a two-step they have to determine does it fit within one of these six categories if so does it violate the public interest so the public interest review is happening only if

[02:20:13] Speaker 01:
You are within one of these six categories.

[02:20:15] Speaker 01:
They agree on that.

[02:20:16] Speaker 01:
Right.

[02:20:16] Speaker 01:
And so we just have to figure out, and this- First we have to look at everything that's coming in.

[02:20:21] Speaker 01:
Yeah, they look at it.

[02:20:22] Speaker 01:
They figure out, is it fit within one of these?

[02:20:24] Speaker 01:
And that's what happened here.

[02:20:25] Speaker 01:
We submitted the contract.

[02:20:26] Speaker 01:
They said, we think it might fit within one of these categories.

[02:20:29] Speaker 01:
We're going to now analyze it.

[02:20:30] Speaker 01:
So we said, OK, go ahead.

[02:20:32] Speaker 01:
They analyzed it.

[02:20:32] Speaker 01:
And then they issued the order saying, yes, it does fit within unlawful activity in gaming.

[02:20:38] Speaker 01:
Therefore, we're going to review it for public interest.

[02:20:40] Speaker 01:
And then they determined it was contrary to public interest.

[02:20:43] Speaker 01:
And when we sued, we said, it doesn't fit into those categories.

[02:20:46] Speaker 01:
And your public interest determination is arbitrary and capricious.

[02:20:50] Speaker 01:
And the court didn't reach that below because it didn't have to because it agreed with us on the first step.

[02:20:54] Speaker 05:
One last question.

[02:20:55] Speaker 05:
You said much earlier on, I apologize for the time,

[02:21:01] Speaker 05:
that you guys had not hurried this in the district court, that in fact you wanted the district court to have the time to get it right and you didn't seek a preliminary injunction.

[02:21:11] Speaker 05:
Are we allowed that same time to get it right?

[02:21:15] Speaker 01:
Well, Your Honor, here's what we did.

[02:21:17] Speaker 05:
No, no.

[02:21:17] Speaker 05:
I'm just asking you, why?

[02:21:19] Speaker 01:
I would like the court to get it right.

[02:21:20] Speaker 01:
I'm glad that the court is taking the opportunity to look at it.

[02:21:25] Speaker 01:
But we're in a rush there.

[02:21:26] Speaker 05:
And I'm wondering, it's all rush rush now.

[02:21:28] Speaker 05:
I get there's this election coming.

[02:21:29] Speaker 05:
But you knew that you were going to have to go through this sort of prior approval process here.

[02:21:33] Speaker 05:
And I'm just wondering why we aren't given the same grace that you gave the district court.

[02:21:39] Speaker 01:
Your Honor, I definitely want the court to be comfortable.

[02:21:41] Speaker 05:
Take the time that it needs.

[02:21:42] Speaker 01:
To be comfortable with.

[02:21:44] Speaker 01:
that the Commission hasn't made the showing they need to make.

[02:21:48] Speaker 01:
The posture is a little bit different now, because we do have a decision on the merits.

[02:21:52] Speaker 01:
They are the ones asking for expedited relief, and they need to show that they satisfy the factors.

[02:21:58] Speaker 01:
If we had lost, and we had come up and said, we want an emergency stay, we would be facing that same difficulty of asking this court for extraordinary relief on a limited time frame.

[02:22:11] Speaker 01:
And we would probably, we may have lost that.

[02:22:14] Speaker 01:
But that's not what happened.

[02:22:15] Speaker 01:
We won.

[02:22:16] Speaker 01:
And now it's on them to make the showing.

[02:22:18] Speaker 01:
And I don't think they have made that show.

[02:22:20] Speaker 05:
We don't have to make a showing first day.

[02:22:21] Speaker 05:
I absolutely understand that.

[02:22:23] Speaker 01:
We sued back in November 1st of last year.

[02:22:27] Speaker 01:
We did the briefing on summary judgment.

[02:22:30] Speaker 01:
And we said from the very time we filed the case, we would like a decision sufficiently in advance of the election so that if

[02:22:37] Speaker 01:
So that we can, assuming we prevail, which we expected we would, because we were confident in arguments, we would have some time before the election for that decision to have a meeting.

[02:22:46] Speaker 05:
You didn't factor in appellate review?

[02:22:48] Speaker 05:
You didn't factor in appellate review?

[02:22:49] Speaker 01:
We factored in the possibility of expedited stay briefing.

[02:22:52] Speaker 01:
But a full appeal, as Your Honor knows, is going to take another year or more.

[02:22:58] Speaker 01:
They didn't ask for expedited appeal.

[02:23:02] Speaker 01:
They asked for a stay.

[02:23:04] Speaker 05:
I can ask for that too.

[02:23:05] Speaker 02:
Okay.

[02:23:05] Speaker 02:
Any other questions for my colleagues?

[02:23:07] Speaker 02:
I had just one other question.

[02:23:08] Speaker 02:
You said that you invested millions of dollars in this.

[02:23:10] Speaker 02:
How much have you invested?

[02:23:12] Speaker 01:
There's a declaration on this that characterizes the amounts from the CEO.

[02:23:19] Speaker 01:
What's that?

[02:23:19] Speaker 01:
You don't want to say that in court?

[02:23:21] Speaker 01:
Oh, I don't.

[02:23:22] Speaker 01:
I just don't remember.

[02:23:23] Speaker 01:
Seven or eight.

[02:23:24] Speaker 01:
I believe was the total.

[02:23:26] Speaker 01:
That includes costs for employees who have been developing this.

[02:23:29] Speaker 02:
And how much money would you make on this, do you think?

[02:23:33] Speaker 02:
I don't know the answer to that.

[02:23:35] Speaker 02:
You make transaction fees?

[02:23:37] Speaker 01:
There are transaction fees on trades.

[02:23:39] Speaker 01:
They haven't been set necessarily.

[02:23:42] Speaker 01:
They can change.

[02:23:43] Speaker 02:
It's a percentage of the trade or how much?

[02:23:48] Speaker 03:
I just want to clarify one thing.

[02:23:49] Speaker 03:
This was about the presumptively subject to public interest view, presumptively not.

[02:23:57] Speaker 03:
And then again, I thought that you said today that from 1974 to 2000 that

[02:24:08] Speaker 03:
event contracts were subject to public interest review.

[02:24:11] Speaker 03:
But weren't all contracts, any new contract that was going to be on a... That's possible, Your Honor.

[02:24:17] Speaker 03:
I don't... I only... Was subject to public interest review.

[02:24:21] Speaker 03:
Yeah, okay.

[02:24:22] Speaker 03:
And then that was suspended for 10 years.

[02:24:27] Speaker 03:
And now... So it's sort of like everything, nothing, select categories.

[02:24:34] Speaker 03:
So it seems if that's right,

[02:24:37] Speaker 03:
is it seems less implausible that the subcategory being event contracts might be one that the Congress thought the Commission should have broad authority to look at.

[02:24:51] Speaker 01:
Well, but Your Honor, the special rule is only about event contracts.

[02:24:54] Speaker 01:
The statute that we're talking about is only about event contracts.

[02:24:56] Speaker 01:
So if they want to say, event contracts are subject to public interest review, they could say, event contracts are subject to public interest review.

[02:25:03] Speaker 01:
Commission may determine that they're contrary to public interest if they involve these categories.

[02:25:08] Speaker 01:
If you read the categories to be everything, it doesn't make any sense.

[02:25:10] Speaker 01:
Right.

[02:25:10] Speaker 03:
If you read the categories to be everything, then all the work of the seven subcategories doesn't make sense.

[02:25:14] Speaker ?:
Right.

[02:25:16] Speaker 04:
Good.

[02:25:17] Speaker 04:
Thank you very much, Council.

[02:25:20] Speaker 04:
Mr. Schwartz, we will give you four minutes.

[02:25:24] Speaker 06:
Thank you, dear homeowners.

[02:25:27] Speaker 06:
That was a lot, but I'll try and keep it to just a few important things.

[02:25:32] Speaker 06:
It's not the most riveting part of this, but I really need to hammer home why they are wrong about the work that the word involve does here.

[02:25:45] Speaker 06:
The main reason is that the statute doesn't say it.

[02:25:47] Speaker 06:
We've been over that a lot.

[02:25:50] Speaker 06:
It would be very easy to write a statute that did say that involved the underlying.

[02:25:55] Speaker 06:
The statute would say that the contract has to be based on an occurrence that involves.

[02:26:01] Speaker 06:
But Congress didn't do that.

[02:26:02] Speaker 06:
There's a big gap between when they talk about the occurrence, the event, and when they talk about based on and involve.

[02:26:09] Speaker 06:
And involve is connected to the whole agreement's contracts or transactions.

[02:26:13] Speaker 06:
There's no illogic there.

[02:26:15] Speaker 06:
The word involved everybody agrees is broad and so the fact that when you apply it to one item on the list or another that it may or may not touch it in the same way is not surprising.

[02:26:30] Speaker 06:
The cases they site deal with.

[02:26:33] Speaker 06:
inconsistent use of a statutory term, not a term that touches one item on a list one way and another another way.

[02:26:42] Speaker 06:
Ratsaliff is a case they cite.

[02:26:44] Speaker 06:
It is about whether or not a statutory requirement of willfulness in a criminal statute means that you have to know you're breaking the law.

[02:26:54] Speaker 06:
It was argued that although it does with respect to one law, maybe it doesn't with respect to the other law.

[02:27:00] Speaker 06:
Let rats lift the Supreme Court said, no, no, no, no.

[02:27:02] Speaker 06:
It can't both mean you have this willfulness requirement here, but you have that willfulness requirement here.

[02:27:09] Speaker 06:
Here, I'll give you a silly example.

[02:27:13] Speaker 06:
Tennis involves a ball because you hit it back and forth.

[02:27:17] Speaker 06:
Tennis involves viewing stands because you sit on them to watch the game.

[02:27:22] Speaker 06:
But the fact that you wouldn't sit on the ball or volley the viewing stands back and forth does not mean you're using two different definitions of the word involved.

[02:27:31] Speaker 06:
It's just a broad word that can capture various kinds of relationships.

[02:27:36] Speaker 02:
So given... So it seems to me that the statutory interpretation issues are a little bit difficult, a little bit more tricky, but the weakest point for you is irreparable harm.

[02:27:47] Speaker 02:
because you have to show irreparable harm, and I still don't.

[02:27:50] Speaker 02:
I mean, in your papers, you say the irreparable harm is related to election integrity and the perception of election integrity.

[02:27:57] Speaker 02:
And I don't see the connection between this rule, reviling these markets, and problems with election integrity.

[02:28:06] Speaker 02:
I don't see it on this record.

[02:28:08] Speaker 06:
Given the concerns that were already expressed by commenters, if it's announced that now there is a new government sanctioned venue where you can bet $100 million on elections, given everything else that this country has been through, I think it is entirely predictable that people will

[02:28:24] Speaker 06:
look at this with alarm, just like the people who happen to comment on our letters do.

[02:28:30] Speaker 06:
Alarm because they're point on a lot of this stuff.

[02:28:36] Speaker 06:
Well, there's already a lot of money in it.

[02:28:38] Speaker 06:
There's already foreign malign actors who are interfering in elections, so what's a little bit more?

[02:28:43] Speaker 03:
The point is that there are markets operating and that the markets, nobody's, nobody in your submission, nobody has pointed to any effect of markets on election outcomes.

[02:28:56] Speaker 06:
I'm talking about the perception, though.

[02:28:58] Speaker 06:
I'm talking about the perception, though, whether it's rational or not.

[02:29:01] Speaker 06:
And I think it is.

[02:29:02] Speaker 03:
Why isn't the answer two weeks of them being up and running and everyone will calm down?

[02:29:08] Speaker 03:
I mean, we can all be afraid of what we don't know.

[02:29:10] Speaker 03:
And it just feels like, yeah, perception of unfriendliness is important.

[02:29:17] Speaker 03:
We all know that.

[02:29:21] Speaker 03:
You don't have an opportunity to do more.

[02:29:23] Speaker 06:
Well, I'm going to do more.

[02:29:25] Speaker 06:
I'll give you another.

[02:29:26] Speaker 06:
The thing that absolutely happens on day one is that the CFTC becomes the election cop legally because of our obligation to police these markets for fraud and manipulation.

[02:29:37] Speaker 05:
No matter what you police them any differently than you would the the earthquake.

[02:29:43] Speaker 06:
The earthquake country.

[02:29:44] Speaker 06:
Well, there's really very little monkeying around.

[02:29:46] Speaker 06:
You can do with an earthquake.

[02:29:47] Speaker 06:
But I will say that this

[02:29:49] Speaker 06:
elections that could involve investigating things having to do with political speech, they could involve.

[02:29:56] Speaker 05:
Somebody bought, but you're going to investigate what they did on the exchange.

[02:30:00] Speaker 06:
Not necessarily.

[02:30:01] Speaker 06:
We have anti-fraud and anti-manipulation authority over the underlying as well.

[02:30:05] Speaker 06:
So if you manipulate the price of corn off exchange, we have anti-fraud, anti-manipulation authority there.

[02:30:12] Speaker 06:
So somebody comes to us.

[02:30:13] Speaker 05:
But not everything that's involved.

[02:30:15] Speaker 06:
Well, if there were a credible allegation that somebody had spread misinformation in order to move the price of the market, that would be... If there's a fungus on corn, it's gonna cause you to go blind.

[02:30:27] Speaker 03:
You have to look into that.

[02:30:28] Speaker 06:
Well, it's possible.

[02:30:31] Speaker 06:
That's a that's kind of an out there example, but but entirely fraud in connection.

[02:30:36] Speaker 02:
Do you investigate things like that?

[02:30:37] Speaker 02:
If somebody tells a lie and it moves the market like there's going to be a new pandemic and it's monkeypox, do you go investigate monkeypox and it's going to happen?

[02:30:46] Speaker 06:
I will answer that by saying that false rumors are a time-tested market manipulation tool.

[02:30:53] Speaker 02:
I'm just trying to get a sense of what you actually investigate because your friend on the other side said there are two different types of things.

[02:30:59] Speaker 02:
One thing, it's easy for you to investigate things like a market on a market and trying to move prices.

[02:31:04] Speaker 02:
But you're saying that you're going to be the election cop, meaning you're going to go and ferret out, as journalists do, whether the things people are saying are true or not.

[02:31:13] Speaker 02:
Is that what you're saying that you're going to do?

[02:31:14] Speaker 06:
It could put that.

[02:31:15] Speaker 06:
I'm not saying we're going to, because we're very ill-suited.

[02:31:17] Speaker 02:
But do you do that?

[02:31:18] Speaker 02:
Like if somebody says they want to move the price of pharmaceutical company stocks or whatever, make it a future, and they say there's going to be a monkeypox

[02:31:30] Speaker 02:
pandemic, and it's originally in the labs of Abbott.

[02:31:34] Speaker 02:
Do you go and investigate Abbott?

[02:31:36] Speaker 06:
We'll assume that we're talking about something in our jurisdiction.

[02:31:39] Speaker 06:
It absolutely could be something.

[02:31:41] Speaker 02:
So you do that.

[02:31:41] Speaker 02:
You have actually investigated companies?

[02:31:44] Speaker 06:
People make companies that have made

[02:31:48] Speaker 06:
false statements to people that they are interacting with.

[02:31:52] Speaker 05:
Are they false economic statements or are they false scientific statements or political statements?

[02:31:59] Speaker 06:
It's typically economic and that's the point, right?

[02:32:02] Speaker 06:
Because if the accusation is he wanted to manipulate the market so he took a bunch of ballots and stuck them in a drawer on election night,

[02:32:10] Speaker 06:
supposed to do with that?

[02:32:11] Speaker 06:
I mean that's it would be within our jurisdiction if this comes to pass.

[02:32:16] Speaker 02:
You would have discretion to draw lines about what you investigate and what you don't.

[02:32:20] Speaker 06:
Yes and the the answer could be we just let it go and whatever goes on the cal she election gambling market goes by other agencies.

[02:32:29] Speaker 05:
You're not the only one in the government.

[02:32:30] Speaker 06:
But they might not necessarily be interested in the same things that would draw our attention because they involved in what it is.

[02:32:36] Speaker 05:
Well, you can refer to them, and they either think what happened was bad or not.

[02:32:41] Speaker 06:
Bad for what?

[02:32:41] Speaker 06:
If it was very bad for the market, that would really put a lot of pressure on us for good reason to do something about it.

[02:32:48] Speaker 06:
But investigating things that may involve collection-related activity is really, really far afield from anything else we do.

[02:32:57] Speaker 06:
And that's the point there.

[02:32:59] Speaker 05:
Any other questions?

[02:33:01] Speaker 05:
All right, thank you.

[02:33:02] Speaker 05:
Thank you.

[02:33:02] Speaker 05:
Both counsel very much.

[02:33:03] Speaker 05:
We know this was done on very short notice and we're grateful to the assistance you both have provided.

[02:33:09] Speaker 05:
Thank you.