Democratic lawmakers are trying to put an end to potential manipulation of prediction markets by government officials who bet on events they know are happening, such as U.S. military actions, under a new bill introduced Tuesday.
The Prohibition of Event Trading in Sensitive Operations and Federal Functions (BETS OFF) Act would prohibit corrupt betting by those who already know the outcome of matters including government actions, terrorism, war, assassination, and other events of which the bettor has inside knowledge. He is backed by Sen. Chris Murphy, a Connecticut Democrat on the Senate Foreign Relations Committee who has been a prominent critic of President Donald Trump’s administration, and Rep. Greg Casar, a member of the House Oversight and Government Reform Committee.
The lawmakers said they are responding to reports that prediction market accounts had placed significant bets ahead of U.S. operations in Venezuela and Iran. While Democrats’ legislation probably won’t be a priority for a Congress that is still majority-controlled in both chambers by Republicans, the midterm elections are considered likely to return the House to a Democratic majority, and possibly the Senate, according to those same prediction markets that lawmakers are focusing on. If Democrats control the gavels of congressional committees, their preferred legislation has a better chance of being heard.
Under the text of the bill, any type of betting that has the potential for insider trading would be prohibited. This extends beyond government-related actions, said a page shared alongside the bill’s text. Events such as surprise singers at the Super Bowl halftime show or award show winners would also be banned “because insiders know the outcome in advance.”
The bill’s text defines “specified events” as “any event…the outcome of which is under the complete control of any person; or the outcome of which is known to any person in advance.”
Market manipulation and fraudulent betting is a matter in the hands of the platforms’ regulator, the United States Commodity Futures Trading Commission. Trump-appointed president Mike Selig is a fan of prediction markets and has argued that they can represent an antidote to flawed political polls and media reporting.
They also have a potential insider trading problem, as seen in a couple of internal disciplinary actions recently taken by one of the leading firms, Kalshi. It suspended and fined two of its users, including a political candidate who had made a bet on his own run for governor of California whose outcome he knew.
In January, Rep. Ritchie Torres, a New York Democrat who has been a longtime ally of the crypto sector, introduced a bill with dozens of fellow lawmakers on board that also aimed to crack down on insider trading after suspicious bets on stocks in Venezuela. And just last week, Senator Adam Schiff of California introduced a bill to ban prediction market contracts linked to war, terrorism, assassinations or outright death, while fellow Democratic Senator Richard Blumenthal introduced a bill of his own to combat insider trading and market manipulation.
Similarly, Murphy’s bill would prevent the CFTC from listing contracts that directly affect these areas.
