CFTC must crack down on offshore prediction market war bets

A group of House Democrats pressured the Commodity Futures Trading Committee in a letter sent late Monday about why the agency has failed to crack down on betting on war and other government actions through offshore prediction markets.

The letter to CFTC Chairman Michael Selig, first obtained by CNBC, questions the agency’s role in regulating prediction markets, which have recently grown in popularity and drawn the ire of a growing number of lawmakers.

“Recent high-profile examples of insider trading on prediction market platforms regarding U.S. government actions, including the military’s intervention in Venezuela and our recent attack on Iran, have raised concerns that the CFTC does not have adequate control over these fast-growing markets,” the group, led by Reps. Seth Moulton and Jim McGovern, both Massachusetts Democrats, wrote.

Well-timed bets on the ouster of Venezuelan President Nicolás Maduro and a US-Israeli attack on Iran have raised concerns about the possibility of insider trading. On popular prediction markets like Kalshi and Polymarket, users can buy event contracts on topics like who will win the NCAA men’s national basketball championship or how long the Department of Homeland Security shutdown will last.

Kalshi is based in the US and says it bans controversial betting on topics such as war and is regulated by the CFTC. Polymarket is an offshore company — but has limited availability in the U.S. — and has been a mecca for some. headline-grabbing event contracts. Both companies recently announced self-enforced guardrails to prevent insider trading on their platforms.

But House Democrats say more could be done to regulate even this offshore trade. The CFTC’s internal rules, as well as the Commodity Exchange Act, allow the agency to regulate situations where “exchange activities outside the United States have a direct and substantial connection with or impact on activities in U.S. commerce,” the lawmakers wrote.

“These provisions make clear that the CFTC has the authority to police insider trading in exchange markets and must enforce its existing rule banning betting on terrorism, assassinations, and war,” the group wrote.

The CFTC and Polymarket did not immediately respond to requests for comment Tuesday.

Democratic Reps. Gabe Amo of Rhode Island, Greg Casar of Texas, Jamie Raskin of Maryland, Dina Titus of Nevada and Yassamin Ansari of Arizona also signed on. They questioned why the agency has not filed any civil lawsuits against such betting so far and whether it has the authority to regulate insider trading in prediction markets. And they asked whether the CFTC had been notified of “any conflicts of interest between major market participants and family members of Executive Branch officials, including the President of the United States.”

Donald Trump Jr. is an investor and unpaid advisor to Polymarket, as well as Kalshi’s strategic advisor. The Trump family’s social media company announced last year that it would launch its own prediction market platform. Accuracy Estimate.

Lawmakers requested a response from Selig by April 15.

“Such corrupt trading deserves swift and decisive oversight. Allowing these contracts to continue raises troubling concerns about the Commission’s desire and capacity to fulfill its global regulatory role,” they wrote.

Lawmakers have been grappling with how to rein in prediction market platforms, introducing a series of bills in recent weeks and months. Some are designed specifically to solve these problems. insider trading threatOthers take a broader approach and seek to ban the conventions of certain types of events, including sports, government actions and war.

Moulton last month announced an officewide policy banning his staff from using prediction markets altogether. In February, a group of Democratic senators sent a separate letter to Selig expressing concerns about event contracts that “encourage physical injury or death.”

Meanwhile Selig went after the stateThey attempted to regulate prediction markets, arguing that the authority belonged to the federal government. The CFTC last week sued three states — Arizona, Illinois and Connecticut — that issued cease and desist orders to prediction markets that they said violated gambling laws. On Monday, a federal appeals court in New Jersey ruled that gaming regulators cannot ban the use of Kalshi to bet on sporting events.

“We’re seeing an attempt by state gaming commissions to effectively override federal law,” Selig said on CNBC’s “Squawk Box” on Monday, before the New Jersey decision was announced.

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

Correction: This story has been updated to correct the name of the Commodity Exchange Act. Dina Titus is a Democratic representative from Nevada. An earlier version had his name misspelled.