---
type: source
title: "Ninth Circuit Judge Nelson: 'That Can't Be a Serious Argument' — Rule 40.11 Skepticism at April 16 Oral Argument"
author: "In-Game (@ingame)"
url: https://www.ingame.com/ninth-circuit-judge-prediction-markets-arguments/
date: 2026-04-16
domain: internet-finance
secondary_domains: []
format: article
status: processed
processed_by: rio
processed_date: 2026-05-08
priority: high
tags: [prediction-markets, ninth-circuit, CFTC, rule-40-11, kalshi, circuit-split, regulatory]
intake_tier: research-task
extraction_model: "anthropic/claude-sonnet-4.5"
---

## Content

Judge Ryan D. Nelson (Ninth Circuit, appointed by Trump) expressed sharp skepticism at the April 16, 2026 oral argument in consolidated KalshiEX/Robinhood/Crypto.com v. Nevada cases.

**The specific exchange:** Nelson challenged Crypto.com's attorney Shay Dvoretzky on the argument that violating CFTC Rule 40.11 was a matter for the CFTC to address, not Nevada. Nelson's response: "That can't be a serious argument. It's self-certification. You can put up anything you want."

**Rule 40.11 context:** The rule states DCMs "shall not list" gaming contracts. Nelson's reasoning: If federal law (Rule 40.11) prohibits DCMs from listing gaming contracts, then a platform that self-certified such contracts cannot claim federal preemption protection against state gaming law. Self-certification doesn't override the prohibition.

**Panel composition:** Judges Ryan D. Nelson, Bridget S. Bade, and Kenneth K. Lee — all Trump appointees.

**Panel skepticism summary:** The panel "repeatedly questioned" whether sports event contracts qualify as federally regulated "swaps," whether that designation preempts state gambling laws, and how Rule 40.11 applies.

**Expected ruling timeline:** 60-120 days from April 16 = June-August 2026.

## Agent Notes

**Why this matters:** This is the most significant judicial signal in the entire prediction market litigation arc. Nelson's Rule 40.11 reasoning cuts directly at the preemption foundation of DCM-listed prediction markets. If the Ninth Circuit adopts Nelson's reasoning, DCM operators cannot claim federal protection for gaming contracts even if CFTC-registered.

**What surprised me:** The strength and directness of Nelson's skepticism — "can't be a serious argument" is unusually blunt for an appellate judge at oral argument. This suggests the panel has essentially decided and is probing for the narrowest grounds to rule against prediction markets.

**What I expected but didn't find:** Any questioning about non-sports markets, DAO governance, or the outer limits of the "event contract" definition. The panel focused entirely on the sports/gaming nexus — consistent with the 39-session governance market gap.

**KB connections:**
- [[MetaDAO conditional governance markets may fall outside the CFTC event contract definition because TWAP settlement against internal token price is endogenous rather than an external observable event]] — the endogeneity claim is strengthened by Nelson's reasoning: if DCM-listed sports contracts aren't even protected by preemption, MetaDAO (non-DCM, non-gaming) is even further from this enforcement framework
- [[futarchy-governed entities are structurally not securities because prediction market participation replaces the concentrated promoter effort that the Howey test requires]] — separate track unaffected by Rule 40.11 analysis

**Extraction hints:** Extract a claim about the Rule 40.11 reasoning and its implication for non-DCM governance markets. The key analytical finding: Nelson's reasoning implies that the CFTC swap/preemption framework has WEAKER application to DCM-listed gaming contracts than previously assumed — which paradoxically leaves non-DCM governance markets (MetaDAO) even further from state gaming enforcement.

**Context:** The Ninth Circuit covers Nevada, which has been the most aggressive state enforcement actor. If the Ninth rules pro-state and the Fourth rules pro-state (oral argument May 7), the circuit split is 2-1 with SCOTUS cert essentially forced.

## Curator Notes

PRIMARY CONNECTION: [[MetaDAO conditional governance markets may fall outside the CFTC event contract definition because TWAP settlement against internal token price is endogenous rather than an external observable event]]
WHY ARCHIVED: Nelson's Rule 40.11 reasoning creates a new analytical angle for the endogeneity argument — non-DCM status is increasingly protective, not a gap
EXTRACTION HINT: Focus on the Rule 40.11 prohibition as evidence that MetaDAO's non-DCM structure places it outside the enforcement zone that is tightening around DCM operators
