WASHINGTON (AP) — Washington is stepping up scrutiny of prediction markets after an anonymous Polymarket user collected more than $400,000 on a January bet predicting the ouster of Venezuelan President Nicolás Maduro, raising concerns that someone with access to private U.S. government information may have engaged in insider trading.
Who Gets Paid When Power Moves
The money trail is what set off the latest alarm. An anonymous Polymarket user reportedly made more than $400,000 on a January wager tied to the ouster of Venezuelan President Nicolás Maduro. The concern is not just that someone won big, but that the winner may have had access to private U.S. government information. That is the kind of arrangement that turns public events into private profit, with the people at the bottom left to watch the spectacle while insiders cash in.
The Associated Press reported this month that a group of new accounts on Polymarket made highly specific, well-timed bets on whether the U.S. and Iran would reach a ceasefire on April 7, resulting in hundreds of thousands of dollars in profits for those new customers. On the same day that report was published, the White House warned staff against using private information to trade on prediction markets.
The Market for Other People’s Lives
The scrutiny comes amid broader concern in Washington over prediction markets, online exchanges that allow users to bet on outcomes ranging from baseball games to when Jesus Christ will return. Members of both parties pressed the leader of a typically low-profile regulatory agency on the issue during a hearing on Thursday, and the market debate is also drawing in the White House, potential presidential candidates and state leaders.
Kristin Johnson, a former commissioner at the Commodity Futures Trading Commission, said, “It’s a national conversation about what it means to have market integrity.” That phrase carries the usual polished language of the powerful, but the underlying issue is simple enough: who gets to turn information into money, and who gets stuck living with the consequences.
Rep. Seth Moulton, D-Mass., said he shared a screenshot of Polymarket activity involving bets on when an airman whose fighter jet was shot down by Iran would be rescued. At the time, an April 3 rescue was trading at 15% compared with 63% who were betting on April 4. After Moulton posted the screenshot and called it a “dystopian death market,” Polymarket stopped the betting, saying the market “does not meet our integrity standards.” Moulton, a former Marine who served four tours in Iraq, said he was “absolutely not satisfied with Polymarket’s response” and blamed the site for being “completely unwilling to self-regulate when it comes to betting on the lives of our service members.” He added, “This is war profiteering and Congress needs to step in and stop it.”
What They Call Regulation
Sen. Todd Young, an Indiana Republican and former Marine, said he had been concerned about trading in the sports market, “but I became especially concerned about market distortions, improper decision making, and undermining of public trust through self-enrichment after the news broke about Venezuela.” Young and Sen. Elissa Slotkin, D-Mich., have introduced a bill that would bar federal employees from using nonpublic information to make bets on prediction markets. Their bill is among several bipartisan efforts in Congress to regulate prediction markets. Young said, “But I think we can all agree at this early stage, as usage of these platforms grows and real money is put at stake, that this is a measure that should be taken immediately.”
As he eyes a potential presidential campaign, Democrat Rahm Emanuel proposed a ban on prediction market bets by all federal employees and their families. On Wednesday, he suggested a 10% fee on those markets and online gambling to fund science and health research. California Gov. Gavin Newsom, another potential Democratic presidential candidate, issued an executive order barring his appointees from using nonpublic information to trade on prediction markets.
Polymarket, founded in 2020, operates largely offshore with limited functions in the U.S. that were allowed only after President Donald Trump returned to office. Polymarket officials did not comment for the story. Donald Trump Jr., the president’s son, is on Polymarket’s advisory board and is a paid adviser for Kalshi. 1789 Capital, the venture capital firm where Trump Jr. is a partner, has invested in Polymarket. Kalshi, founded in 2018, says it already bans many of the most extreme betting markets and welcomes regulation. Kalshi spokesperson Elisabeth Diana said, “We support Congress and regulators taking action to police insider trading, keep prediction markets onshore and under federal regulation. Not all prediction markets are the same.” White House spokesman Davis Ingle said Trump has been clear that “members of Congress and other government officials should be prohibited from using nonpublic information for financial benefit.”
The Commodity Futures Trading Commission, which regulates prediction markets in the U.S., is now served by only one member, Michael Selig, a former CFTC law clerk who went on to represent cryptocurrency clients before Trump appointed him to lead the agency. The agency is supposed by law to have a five-member board including representatives of both political parties. Dennis Kelleher, the president and chief executive of Better Markets, said the agency “certainly has no experience, expertise, budget, technology to actually in any way supervise, regulate or police gambling on everything from whether it’s Iran, Venezuela, whether it’s reality TV, whether Christ is going to come back before the end of the year.” Sen. Richard Durbin, D-Ill., sent Selig a letter in February noting that the number of enforcement attorneys at the agency’s Chicago office had declined from 20 to zero.
During a Thursday hearing of the House Agriculture Committee, which oversees the CFTC, Selig said the agency was hiring new staff and operating more efficiently. He refused to hold off on completing new regulations until new members were added to the board but said he was taking the potential of insider trading seriously. “Nothing is more important than protecting market integrity,” he said.
Asked at a recent Vanderbilt University forum about the CFTC’s approach to insider trading in unregulated offshore prediction markets, Selig blamed the Biden administration for creating a regulatory environment that he said discouraged companies from operating in the U.S. As the debate plays out in Washington, multiple states have tried to curtail prediction markets, arguing they are essentially operating as unlicensed gambling platforms. The CFTC has responded by suing Connecticut, Arizona and Illinois this month. For now, there is no immediate path to passage for any of the bills, but lawmakers broadly agree that something should be done to address prediction markets.