Rep. Seth Moulton, D-Mass., arrives for the House Democrats’ caucus meeting in the Capitol on Thursday, Nov. 15, 2018.
Bill Clark | CQ-Roll Call Group | Getty Images
A group of House Democrats pressed the Commodity Futures Trading Commission in a letter sent late Monday on why the agency has not cracked down on bets placed on war and other government actions via offshore prediction markets.
The letter to CFTC Chair Michael Selig, obtained first by CNBC, questions the agency’s role in regulating prediction markets, which have surged in popularity of late and drawn the ire of a growing number of lawmakers.
“Recent high-profile instances of alleged insider trading on prediction market platforms relating to U.S. government actions — including the military’s intervention in Venezuela and our recent attack on Iran —have fueled concern that the CFTC does not have adequate control over these fast-growing markets,” wrote the group, led by Reps. Seth Moulton and Jim McGovern, both Massachusetts Democrats.
Well-timed bets on the ouster of Venezuelan President Nicolás Maduro and the U.S.-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 things like who will win the NCAA men’s basketball national championship or how long the Department of Homeland Security shutdown will last.
Kalshi is based in the U.S. and says it bans controversial bets on topics like war and is regulated by the CFTC. Polymarket is an offshore company — though it is available in the U.S. on a limited basis — and has been the venue for some headline-grabbing event contracts. Both companies recently announced self-imposed guardrails to curb insider trading on their platforms.
But the House Democrats say more could be done to regulate even those offshore trades. The CFTC’s internal rules, as well as the Commodity Exchange Act allow the agency to regulate when “swap activities outside the United States have a direct and significant connection with activities in, or effect on, commerce of the United States,” the lawmakers wrote.
“These provisions make it clear that the CFTC has the authority to police insider trading in swaps markets and should apply its existing rule prohibiting bets relating to 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. They questioned why the agency had not so far taken any public action against such bets, and whether it feels it has the authority to regulate insider trading on prediction markets. And they asked if the CFTC had been made aware 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 in and an unpaid advisor to Polymarket, as well as a strategic advisor to Kalshi. The Trump family’s social media company last year announced it would start its own prediction market platform, called Truth Predict.
The lawmakers requested a response from Selig by April 15.
“Such corrupt trades deserve swift and decisive oversight. Allowing these contracts to persist raises troubling concerns about the Commission’s desire and capacity to fulfill a global regulatory role,” they wrote.
Lawmakers are wrestling with how to rein in prediction market platforms, introducing a flurry of bills in recent weeks and months. Some are specifically designed to address the threat of insider trading, while others take a broader approach and seek to ban certain kinds of event contracts, including on sports, government actions and war.
Moulton last month announced an officewide policy banning his staff from using prediction markets altogether. A group of Democratic senators in February sent Selig a separate letter expressing their concern about event contracts “that incentivize physical injury or death.”
Selig, meanwhile, has gone after states that have tried to regulate prediction markets, arguing that authority belongs to the federal government. The CFTC last week sued three states — Arizona, Illinois and Connecticut — that had issued cease and desist orders to prediction markets they said violated gambling laws. On Monday, a federal appeals court in New Jersey ruled that gaming regulators cannot bar the use of Kalshi to place bets on sporting events.
“What we’re seeing is an attempt by the state gaming commissions to effectively nullify federal law,” Selig said Monday on CNBC’s “Squawk Box,” before the New Jersey decision was released.
Disclosure: CNBC and Kalshi have a commercial relationship that includes a CNBC minority investment.
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 misspelled her name.
