Washington tightens scrutiny of prediction markets over geopolitical betting

Congress and the White House are moving to regulate prediction markets like Kalshi and Polymarket over concerns that the platforms enable insider trading and war profiteering. The push comes after reports of highly profitable bets placed on military and geopolitical events, including bets on when a U.S. airman downed in Iran would be rescued and on Venezuelan President Nicolás Maduro’s ouster.

The regulatory effort has drawn rare bipartisan backing in a polarized Congress, with lawmakers from both parties pressing the Commodity Futures Trading Commission for tighter oversight. But enforcement capacity is limited—the CFTC operates with a single appointed member—and the platforms’ offshore structures complicate U.S. jurisdiction.

Rep. Seth Moulton, D-Mass., a former Marine, ignited the regulatory push after Polymarket users began betting on when a U.S. airman shot down by Iran would be rescued. On social media, Moulton shared a screenshot showing April 3 rescue trading at 15% and April 4 at 63%. He called the market a “dystopian death market” and said Polymarket was “completely unwilling to self-regulate when it comes to betting on the lives of our service members.”

“This is war profiteering and Congress needs to step in and stop it,” Moulton said.

Polymarket stopped the betting after Moulton’s post, saying the market “does not meet our integrity standards.” But Moulton said he remained “absolutely not satisfied” with the platform’s response.

Congressional Action

The concern is gaining traction in Washington. Senators Todd Young, R-Ind., and Elissa Slotkin, D-Mich., introduced a bipartisan bill barring federal employees from using nonpublic information to make bets on prediction markets. Democrat Rahm Emanuel proposed a broader ban on prediction market bets by all federal employees and their families, and suggested a 10% fee on those markets to fund science and health research. California Gov. Gavin Newsom issued an executive order barring his appointees from using nonpublic information to trade on prediction markets.

Though none of the bills has an immediate path to passage, the scrutiny has begun to sort the prediction markets into two camps with sharply different regulatory postures.

The Maduro Precedent

The regulatory push intensified after a pattern of unexplained profitable trades emerged. Earlier this year, an anonymous Polymarket user collected more than $400,000 on a January bet predicting the ouster of Venezuelan President Nicolás Maduro, prompting concerns that someone with access to private U.S. government information may have engaged in insider trading.

That example prompted Sen. Richard Durbin, D-Ill., to raise broader concerns about the regulatory agency’s capacity. In February, Durbin sent a letter to CFTC Chairman Michael Selig noting that the number of enforcement attorneys at the agency’s Chicago office had declined from 20 to zero.

The Associated Press reported this month that new accounts on Polymarket made well-timed bets on whether the U.S. and Iran would reach a ceasefire on April 7, resulting in hundreds of thousands of dollars in profits. On the same day the report was published, the White House warned staff against using private information to trade on prediction markets.

Regulated vs. Offshore

Kalshi, established in 2018 as a regulated U.S. prediction market, said it already bans many extreme betting markets and welcomes regulation. “We support Congress and regulators taking action to police insider trading, keep prediction markets onshore and under federal regulation,” said Kalshi spokesperson Elisabeth Diana.

Polymarket, founded in 2020, operates largely offshore with limited functions in the U.S. allowed only after President Donald Trump returned to office. The platform has not commented publicly on the scrutiny. But the company’s leadership includes Trump Jr., the president’s son, who is on Polymarket’s advisory board and is a paid adviser for Kalshi. 1789 Capital, the venture capital firm where Trump Jr. is a partner, has invested in Polymarket.

CFTC’s Limited Tools

During a Thursday hearing of the House Agriculture Committee, which oversees the CFTC, Selig said the agency was hiring new staff and operating more efficiently. He said nothing was “more important than protecting market integrity” and that the agency was taking the potential of insider trading “very seriously.”

But the CFTC’s enforcement authority extends only to prediction markets regulated in the U.S., which largely applies to Kalshi. Polymarket’s U.S.-only platform currently operates under a waitlist and remains a small fraction of its offshore counterpart’s size.

Dennis Kelleher, president and chief executive of Better Markets, a Washington nonprofit that has pressed for stronger oversight, said the CFTC lacks the “experience, expertise, budget, technology” to supervise prediction markets. The markets now allow bets on everything from geopolitical conflict to reality television to religious prophecy.

Young acknowledged his proposal is just a first step and that lawmakers have much to learn about prediction markets. “But I think we can all agree at this early stage, as usage of these platforms grows and real money is put at stake, that this is a measure that should be taken immediately,” he said.