Democrats urge warnings to federal officials against insider bets on prediction markets

More than 40 Democrats in the U.S. Senate and House of Representatives sent a letter to a federal regulator and to ethics officials to ask them to warn government officials that insider trading in derivatives is illegal and that bets they make on prediction markets firms like Polymarket and Kalshi qualify under that category.

The ranking Democrats on the Senate Banking Committee (Senator Elizabeth Warren) and Senate Agriculture Committee (Cory Booker) joined dozens of their colleagues in asking Chairman Mike Selig, chief of the Commodity Futures Trading Commission, and the leaders of the U.S. Office of Government Ethics to "circulate executive branch-wide guidance explaining that federal employees must refrain from insider trading in prediction markets."

The request was spurred by the eruption of suspicious reports that recent event contracts on government or military action seemed to draw bets from people with special insight into the outcomes, leading many to believe that government officials — or people associated with them — may have made such bets. U.S. derivatives laws state the illegality of government officials making trades based on non-public information they got on the job. Since the CFTC has declared the contracts at such firms are regulated derivatives, the ban should hold true, the lawmakers contended.

"We ask that the CFTC and OGE issue guidance reminding federal employees of their existing legal obligation to refrain from using their insider governmental information to profit from prediction market trades," said the letter, dated March 29

The instances of potential insider trading outlined in the letter included contracts on military actions in Venezuela and Iran, the length of a speech from President Donald Trump's press secretary and the firing of former Department of Homeland Security Secretary Kristi Noem.

The letter was also signed by the top Democrats on the House Agriculture Committee, Representative Angie Craig, and the House Financial Services Committee, Representative Maxine Waters. The agriculture panels in both chambers are the ones that directly oversee the CFTC.

Selig's CFTC has been working on a new set of policies to govern the prediction markets. Those businesses are closely related to the crypto industry, which is a current focus of many of the lawmakers on this letter, who are also working on the Digital Asset Market Clarity Act that's been hung up in the Senate.

Also on Monday, news emerged that federal prosecutors reportedly spoke to prediction market firms about whether certain instances could trigger insider-trading cases.