U.S. democrats urge crackdown on potential insider trading in prediction markets

More than 40 Democratic lawmakers have pressed U.S. regulators to step in as concerns mount over potential misuse of sensitive government information in prediction markets.

In a letter sent to the Commodity Futures Trading Commission and the Office of Government Ethics, the group pointed to “multiple incidents” that, in their view, have fueled speculation that federal employees may have used nonpublic information to place trades.

Lawmakers urged both agencies to act quickly, writing that they should “circulate executive branch–wide guidance” to make clear that government officials are prohibited from engaging in insider trading on such platforms.

Examples cited in the letter included wagers tied to the reported capture of Nicolás Maduro and bets on the duration of a press briefing by Karoline Leavitt. 

Lawmakers also flagged more sensitive cases involving trading activity linked to events such as tensions involving Iran and speculation around the fate of Kristi Noem, warning that such behavior could raise national security concerns.

“More recently, it has been reported that a number of users engaged in suspicious trades relating to the invasion of Iran and the death of Ayatollah Khamenei,” the letter stated, pointing to fears that market activity could, at times, signal or even incentivize real-world events.

Regulators have been asked to provide a formal briefing by April 13, along with details on whether any investigations into federal employees are underway and what systems are in place to detect such conduct.

Further, lawmakers noted that the CFTC already treats event contracts as derivatives, which places them under existing financial rules. As a result, it brings them within the scope of the STOCK Act, a 2012 law signed by Barack Obama that bars public officials from using material nonpublic information for personal gain.

“The CFTC has determined that event contracts are derivatives that depend on the occurrence or non-occurrence of an event,” lawmakers wrote, adding that insider trading prohibitions should therefore apply equally to prediction markets.

These concerns are coming at a time when platforms like Polymarket and Kalshi have witnessed a surge in popularity.

However, pressure on regulators is building alongside a broader crackdown on prediction markets, where lawmakers are not only questioning trading behavior but also the legitimacy of contracts tied to real-world harm.

As previously reported by crypto.news, a Senate bill titled the “DEATH BETS Act” was introduced earlier this month, seeking to ban event contracts linked to war, assassination, and an individual’s death, which could further tighten the scope of permissible offerings across such platforms.