xAI argues that the law forces changes to its chatbot Grok and violates free speech protections. At the same time, the US Department of Justice and Commodity Futures Trading Commission are seeking a court order to stop Arizona from enforcing gambling laws against prediction market platform Kalshi, arguing its event contracts qualify as swaps under federal law and fall under CFTC jurisdiction. Arizona Attorney General Kris Mayes charged Kalshi with operating an unlicensed gambling business, claims the company denies.
xAI Sues Colorado
xAI filed a lawsuit against the state of Colorado to block the implementation of new artificial intelligence regulations that it argues could restrict free speech. The legal challenge centers on Senate Bill 24-205, which is a law designed to protect users from what lawmakers describe as “algorithmic discrimination” in critical areas like employment, housing, and financial services.
The legislation is scheduled to take effect on June 30 and is one of the most comprehensive state-level attempts to regulate how AI systems make decisions that impact individuals.
In its filing with a US district court, xAI contends that the law effectively forces the company to alter the outputs of its chatbot, Grok, in ways that align with the state’s interpretation of fairness and equity. According to the company, this constitutes compelled speech and interferes with its mission of developing AI systems that are “maximally truth seeking.”
xAI further argues that the legislation is internally inconsistent, as it seeks to prevent discrimination while simultaneously encouraging differential treatment that is aimed at increasing diversity or addressing historical inequalities.
This lawsuit follows a similar legal action that was taken by xAI against the state of California in December, where it challenged the Generative AI Training Data Transparency Act. In that case, the company argued that mandatory disclosure requirements would force it to reveal proprietary information and trade secrets, which could potentially violate constitutional protections under the First and Fifth Amendments.
The latest legal dispute also unfolds against the backdrop of criticism directed at Grok, which has faced accusations of generating racist, sexist, and antisemitic content. These concerns fueled calls for stronger oversight of AI systems, particularly those deployed at scale in sensitive domains.
David Sacks, who serves as the White House AI czar, has advocated for a unified national framework rather than a fragmented regulatory landscape. He warned that allowing individual states to create their own rules could result in a complex patchwork of regulations that is difficult for companies to navigate.
DOJ, CFTC Move to Block Arizona Kalshi Case
A similar issue is being seen in the prediction market sector. The US Department of Justice and the Commodity Futures Trading Commission have jointly asked a federal court to prevent the state of Arizona from enforcing its gambling laws against prediction market platform Kalshi.
In a court filing that was submitted on Wednesday, the federal agencies argued that the contracts offered by Kalshi should be classified as swaps under the Commodity Exchange Act, placing them firmly under the CFTC’s exclusive jurisdiction rather than state-level gambling oversight.
Part of the court filing that was submitted on Wednesday (Source: Court Listener)
According to the filing, event contracts listed on federally regulated platforms like Kalshi fall within the scope of federally supervised derivatives markets. As such, the DOJ and CFTC contend that Arizona’s attempt to prosecute the platform constitutes an unlawful intrusion into federal authority. If the court grants the requested temporary restraining order, Arizona would be barred from applying its gambling laws to these federally regulated event contracts.
The dispute stems from charges that were announced on March 17 by Arizona Attorney General Kris Mayes, who accused the companies behind Kalshi of operating an illegal gambling business without a license and offering unlawful election wagering. An arraignment in the criminal case is scheduled for Monday.
Kalshi’s co-founder and CEO, Tarek Mansour, strongly rejected the allegations, and described them as a “total overstep.” He insists that the platform’s activities are not related to gambling but rather fall under regulated financial markets.
Earlier in April, the CFTC filed lawsuits against gaming regulators in Illinois, Connecticut, and Arizona, as part of its stance that it holds exclusive jurisdiction over designated contract markets that list lawful event contracts. Kalshi is a central figure in this legal battle, serving as a test case for the future of the industry.
The regulatory scrutiny comes amid rising concerns about insider trading and market manipulation. Prediction markets have recently attracted some attention after reports that several traders on Polymarket earned big profits by correctly predicting the timing of US military actions involving Iran. This prompted legislative responses, including a proposal by Adam Schiff to ban prediction markets tied to sensitive topics like war, death, and terrorism.
Statement from Sen. Adam Schiff
