42 Democrats press regulators on prediction market insider trading

More than 40 Democratic lawmakers sent a letter to the Commodity Futures Trading Commission and the Office of Government Ethics on Monday, demanding guidance for federal employees on the illegality of using nonpublic information to trade on prediction markets like Polymarket and Kalshi.

"Given the exponential growth in prediction market trading, rising evidence suggesting possible governmental insider trading... and potential confusion surrounding existing law in this area, we ask that the CFTC and OGE issue guidance," the letter, organized by Senator Elizabeth Warren, said.

The letter highlights several suspicious instances, including profitable wagers on the capture of Venezuelan leader Nicolás Maduro and the death of Iran’s Supreme Leader Ali Khamenei. The lawmakers argue that since the CFTC classifies prediction market contracts as derivatives, they are covered by both the Commodities Exchange Act and the STOCK Act of 2012, which prohibit officials from using inside information for personal gain.

The move escalates pressure on the CFTC, which is already developing new policies for prediction markets. The lawmakers have requested a briefing by April 13 on what steps the agency has investigated and what measures it will take to ensure prediction markets can better detect and prevent potential insider trading by federal employees, setting a clear deadline for regulatory action.

The letter was signed by prominent Democrats including Senators Kirsten Gillibrand and Cory Booker, and Representatives Maxine Waters and Angie Craig, the ranking members of the House committees that oversee the CFTC. The push comes as prediction markets face growing scrutiny from multiple angles.

In response to the pressure, both Kalshi and Polymarket instituted new rules this week to curb potential insider trading. Polymarket explicitly banned users from trading on contracts where they might possess confidential information, while Kalshi said it would block political candidates from betting on their own campaigns.

The regulatory push is not isolated. In a separate move, Senator Adam Schiff and Senator John Curtis introduced a bipartisan bill titled the “Prediction Markets are Gambling Act,” which seeks to ban contracts related to sports. While distinct from the insider trading concerns, it shows a broadening skepticism in Congress toward the largely unregulated industry. The CFTC, under Chairman Mike Selig, has so far been more supportive of the platforms, arguing federal law preempts state-level gambling restrictions.

This article is for informational purposes only and does not constitute investment advice.