U.S. regulators are confronting significant obstacles in policing insider trading on prediction markets like Kalshi and Polymarket, where government insiders may be leveraging non-public information for financial gain. The platforms have drawn scrutiny following a series of unusually well-timed, large-dollar bets tied to major government events, raising questions about enforcement authority and legal gaps.
Prediction markets have grown in recent years, with platforms offering wagers on events from weather patterns to elections and government decisions. Polymarket, which operates using cryptocurrency, has opened markets on geopolitical events including Iran’s government stability and U.S. military operations in the region—areas where sitting American officials have direct influence.
By Wednesday, more than $25 million had changed hands on a single market asking when President Donald Trump would declare an end to military operations in Iran.
The suspicion intensified after analysts examined betting patterns connected to former President Biden’s last-minute pardons. A Paris-based data firm, Bubblemaps, tracked one Polymarket account that profited $316,346 after placing well-timed bets on those pardons. Joshua Mitts, a Columbia Law School professor who consults for the Justice Department, stated the odds of that outcome occurring by coincidence are “virtually zero.”
Another case involved six accounts suspected of trading on inside knowledge, which made a combined $1.2 million at the moment U.S. airstrikes hit Iran. Senator Elizabeth Warren responded on X, stating: “That’s not luck. That looks like insider trading. A handful of insiders should not be allowed to turn global crises into personal paydays. I’m pushing for an investigation.”
A core challenge lies in the gap between what prediction markets do and what existing laws cover. Richard Painter, who served as the top ethics lawyer in the George W. Bush White House, noted that prediction markets are not classified as securities markets, meaning standard insider trading statutes do not apply.
The STOCK Act does prohibit government officials from using non-public information for personal financial gain. However, anonymous cryptocurrency accounts make it nearly impossible to trace who is actually placing bets. As Mitts explained, when investigators subpoena records and the trail leads to an account with no ties to the White House, enforcement efforts stall.
The two largest platforms operate under markedly different regulatory frameworks. Kalshi holds a federal license as a Designated Contract Market and falls under the Commodity Futures Trading Commission’s oversight. The platform is required to verify user identity and has insider trading rules in place. Kalshi’s CEO, Tarek Mansour, stated at a recent conference that insider trading on his platform “can and will at some point be a federal crime” and predicted the Justice Department would eventually prosecute cases.
Polymarket, by contrast, operates largely beyond U.S. law’s reach. Federal prosecutors in Manhattan met with the company last month to examine whether its markets had crossed legal lines, but the platform’s offshore structure and cryptocurrency use continue to obstruct oversight.
The CFTC, which would normally lead enforcement in this space, operates with limited resources. The agency currently has only one sitting member—its chair, Michael Selig—instead of the standard five, and its budget remains below $400 million. Selig is expected to tell Congress that anyone involved in fraud or insider trading in these markets “will face the full force of the law.”
White House staff received an email in March warning that betting on these markets using government information violates federal ethics rules. On Capitol Hill, Senator Adam Schiff and Representative Mike Levin introduced legislation called the Death Bets Act, which would ban markets tied to terrorism, assassination, and war.
Meanwhile, the prediction market industry is projected to reach $1 trillion in value within four years.
