Merkley bill would ban government officials from prediction markets

Payments to anonymous bettors following the overthrow of former Venezuelan President Nicolás Maduro and the US attack on Iran brought prediction markets to the fore. Now lawmakers are trying to stop elected officials from getting rich off of them.

Sen. Jeff Merkley, D-Ore. and Amy Klobuchar, D-Minn. A previously unreported bill led by is being introduced Thursday; The president, vice president and members of Congress are expected to be barred from commercial event contracts that allow users to bet on the outcomes of certain events. It would also limit prediction market activity for top executive branch officials and impose fines starting at $10,000 on violators.

“Members get all kinds of tips and advice,” Merkley said in an interview. “Actual demonstration of insider trading is too difficult to be sufficient to solve the problem. The problem becomes both actual corruption… and the appearance of corruption and conflict of interest.”

The new legislation is unlikely to become law in the Republican-controlled Congress, but it could serve as a regulatory building block for the nascent industry.

Prediction markets such as Polymarket and Kalshi are growing in popularity and allow users to bet on the outcome of a wide range of events. Some are unimportant, such as basketball games And Oscar best picture winners. Others are more weighty, such as who will specifically win political races and whether the Federal Reserve will do so. lower interest rates.

The platforms have come under scrutiny from lawmakers and regulators in recent months, particularly after bets were placed on Polymarket on the fate of Iranian leader Ayatollah Ali Khamenei, who was killed in US-Israeli attacks on Iran last week.

A. Analysis by the New York Times The Polymarket activity that led to the Iran attacks revealed that bets were increasing that an attack could occur the next day.

“There was a suspicious amount of new activity, people making a very specific bet on Friday that we were going to go to war with Iran,” said Sen. Chris Murphy, D-Conn. Video sent to X on Wednesday. Murphy said on Wednesday that the government would pass legislation that would ban the trade through its actions, although he did not specify the timing.

“Obviously, there are people close to Donald Trump who knew what happened on Saturday on Friday, and it’s very possible, even probable, that the people making these bets were insiders,” Murphy said. he said. “We need to make a fuss about a new corruption scandal in the White House.”

A White House official noted via email that gambling and insider trading on government property is already illegal, but did not directly respond to Murphy’s claims.

Even before bookmakers were cashing in on the Iran attack, doubts were growing in Democratic ranks.

Sen. Adam Schiff, D-Calif. and five other Democratic senators sent a letter He called on Commodity Futures Trading Commission Chairman Michael Selig to ban event contracts that involve betting on physical injury, death or war.

They touched on the possible explosion in the launch of a NASA spacecraft, Russia’s occupation of a town in Ukraine, and the latest allegations about the fate of Maduro.

Merkley’s concerns about prediction markets have been exacerbated by the activity around the Iran attacks. But he became suspicious after an initially unnamed incident. Polymarket user earned more than $400,000 By correctly predicting that the United States would invade Venezuela and remove its authoritarian leader.

“This was a situation where the Secretary of State said, ‘We did not notify Congress as we were required to do under the law because we were so concerned about a leak,'” Merkley said. “So you’re talking about incredibly tightly held information. It seems extraordinarily likely that someone in this tight group could have passed the information on to someone who was transacting.”

Merkley said the bill was introduced after consultation with Kalshi. Kalshi, one of the world’s largest prediction markets and regulated by the CFTC, offered its overall support for federal regulation in its statement.

“We support Congress and regulators taking action to police insider trading and keep prediction markets onshore and under federal regulation,” a spokesperson said via email. “Over the past several months, we have received support from policymakers regarding their work to ensure market integrity, and we are in discussions with many of them, including Senator Merkley.”

The proposal also comes just days after the formation of a new trade group called Gambling Is Not Investing, led by former Trump White House chief of staff Mick Mulvaney, pushing for tighter state regulations on prediction markets.

But at least in Congress, GOP lawmakers have not signaled support for Merkley or similar proposals; That means the new measure will be difficult to pass in a Republican-controlled Congress.

Merkley and Klobuchar’s bill, as introduced, has no Republican co-sponsors. Schiff signed on along with Democratic Sens. Chris Van Hollen of Maryland and Kirsten Gillibrand of New York.

“As prediction markets experience massive growth, we also see increased reports of abuse,” Klobuchar said in a statement. he said. “This legislation strengthens the Commodity Futures Trading Commission’s ability to go after bad actors and provides rules of the road to prevent those with classified government or policy information from exploiting that access for financial gain.”

Rep. Ritchie Torres (D-Y) introduced similar legislation in the U.S. House in January after Maduro-related bets emerged. his bill It would ban elected officials and employees of the federal government from placing prediction market bets on government policy, government action or political outcomes. It is not intended for application.

“Every market has a ban on insider trading, so why should prediction markets be an exception?” Torres said this in a brief interview at the Capitol last month. “Prediction markets should be held to the same standard of integrity that governs the rest of the financial system and the rest of the economy.”

Forty-one Democrats and zero Republicans co-sponsored He accepted Torres’ proposal but said he believed the GOP would eventually accept it.

“I suspect this will have the same trajectory as the stock trading ban; it will start out as a Democratic priority but over time it will become bipartisan,” Torres said. “For me, it’s not a matter of if, but when. Prediction markets are facing intense scrutiny, and for me, banning insider trading is a logical place to start.”

Congress did not pass a ban on lawmakers’ stock trading.

—Garrett Downs contributed to this story.

Disclosure: CNBC and Kalshi have a business relationship that includes customer acquisition and minority investment.