42 Lawmakers Say Federal Employees May Be Insider Trading on Prediction Markets — Here is Why It Matters

A group of 42 Democratic lawmakers is raising the alarm over what they call a growing risk: federal employees using inside knowledge to profit on prediction markets like Kalshi and Polymarket.

In a letter sent to the Commodity Futures Trading Commission (CFTC) and the Office of Government Ethics, the lawmakers cited “multiple incidents” that have sparked concern about insider trading on event contracts — markets where people bet on the outcomes of real-world events.

What Triggered the Letter?

• Venezuela capture bets — Users wagered on the capture of Venezuelan leader Nicolas Maduro
• White House speech contracts — Bets on the length of press secretary Karoline Leavitt January 7 speech
• Iran invasion bets — Suspicious trades related to the invasion of Iran and the death of Ayatollah Khamenei, raising national security red flags about “signaling impending attacks”
• DHS firing bets — Wagers on whether former DHS Secretary Kristi Noem would be fired

The STOCK Act Argument

The lawmakers argue that prediction market contracts qualify as regulated derivatives under the CFTC framework. That matters because the STOCK Act — signed by President Obama in 2012 — bans government officials from using material, nonpublic information for personal financial gain.

Since event contracts are derivatives, the same insider trading rules that apply to stock trading should apply to prediction market bets.

What They Are Asking For

• Executive branch-wide guidance telling federal employees they cannot insider trade on prediction markets
• A briefing from the CFTC by April 13
• Details on whether the CFTC has investigated or received reports of federal employees trading on prediction markets
• Information on what steps the CFTC is taking to detect and prevent such activity

The Bigger Picture

Prediction markets have exploded in popularity over the past two years, especially during elections and geopolitical crises. Platforms like Kalshi and Polymarket have announced plans to introduce guardrails against insider trading, but regulators are now stepping in to formalize the rules.

For everyday users, this could mean stricter verification, trading limits, or restrictions on certain contracts — especially those tied to government actions or national security events.

Sources: Cointelegraph | Sen. Warren Press Release