More than 40 Democrats in the U.S. Senate and House of Representatives sent a letter to a federal regulator and ethics officials asking them to warn government officials that insider trading in derivatives is illegal and that bets they place on prediction markets like Polymarket and Kalshi qualify under that category.
Top Democrats on the Senate Banking Committee (Sen. Elizabeth Warren) and the Senate Agriculture Committee (Cory Booker) joined dozens of their colleagues in calling on Chairman Mike Selig, head of the Commodity Futures Trading Commission, and leaders of the U.S. Office of Government Ethics to “circulate guidance throughout the executive branch explaining that federal employees should refrain from using inside information in prediction markets.”
The request was prompted by the emergence of suspicious reports that contracts for recent events involving government or military actions appeared to result in bets from people with special knowledge of the outcomes, leading many to believe that government officials – or people associated with them – could have made such bets. US derivatives laws make it illegal for government officials to make transactions based on non-public information they obtained in their work. Since the CFTC has declared such companies’ contracts to be regulated derivatives, the ban should be valid, lawmakers argued.
“We request that the CFTC and OGE issue guidance reminding federal employees of their existing legal obligation to refrain from using their privileged government information to profit from prediction market operations,” the letter, dated March 29, said.
Cases of possible insider trading outlined in the letter included contracts for military actions in Venezuela and Iran, the length of a speech by President Donald Trump’s press secretary and the firing of former Department of Homeland Security Secretary Kristi Noem.
The letter was also signed by top Democrats on the House Agriculture Committee, Rep. Angie Craig, and the House Financial Services Committee, Rep. Maxine Waters. The agriculture panels of both chambers directly oversee the CFTC.
Selig’s CFTC has been working on a new set of policies to govern prediction markets. Those companies are closely related to the crypto industry, which is the current focus of many of the lawmakers in this letter, who are also working on the Digital Asset Market Clarity Act that has been hung in the Senate.
Also on Monday, news emerged that federal prosecutors reportedly spoke with prediction market companies about whether certain cases could trigger insider trading cases.
