So, you thought you could use that juicy piece of nonpublic info to make a quick buck on a prediction market? Think again. The Commodity Futures Trading Commission is stepping up its oversight as these markets explode in popularity, and it has a very clear message for traders: insider trading will not be tolerated.
Speaking at New York University's School of Law, CFTC enforcement chief David Miller laid down the law. He said insider trading on platforms like Kalshi and Polymarket is illegal and will be a top enforcement priority for the agency.
"A myth has spread that insider trading is permissible, or even encouraged, in the prediction markets," Miller said. He pointed a finger at "prominent individuals in finance, media, and particularly on social media" who have argued that insider trading law doesn't apply to these markets. "These comments all suggest that insider trading is an important and acceptable part of the prediction market ecosystem. Not so," he stated bluntly.
To back up the talk, Miller said the CFTC will hire more staff to investigate cases and negotiate settlements, assuring everyone that the agency has the resources to enforce the rules.
The warning comes after some high-profile incidents put these platforms in the spotlight. There was the California politician who wagered on his own election and a content editor who traded on confidential information about a media production. In response, Polymarket recently announced a stricter policy against using nonpublic information.
It's not just regulators paying attention. Political pressure is mounting in Washington. Rep. Adam Schiff said the prediction markets industry cannot be left to self-regulate and called for strong rules to prevent elected officials from using insider information to profit. He announced he is joining Sen. Elissa Slotkin on a bipartisan bill aimed at cracking down on such abuses.
The stakes, quite literally, are getting higher. Manhattan prosecutors have met with Polymarket to investigate whether high-stakes bets—including trades tied to events like Nicolás Maduro's capture and conflict in Iran—violated insider trading and other federal laws.
Facing this heat, the platforms are making changes. Last week, both Polymarket and Kalshi updated their rules to explicitly ban trades based on confidential information. Kalshi went a step further, blocking politicians and athletes from betting in markets directly related to them.
The scrutiny is also coming from outside government. Political risk expert Ian Bremmer banned employees at his Eurasia Group from trading on prediction markets, calling them "corrosive for civil society."
And the legal challenges are escalating. The state of Arizona has filed criminal charges against Kalshi, adding another layer of pressure on the rapidly growing industry.
It seems the wild west days for prediction markets might be coming to an end. The message from regulators, politicians, and prosecutors is now crystal clear: if you have material, nonpublic information, keep it away from your betting account.
