Dems urge CFTC to rein in prediction markets sports betting, insider trading

A group of Democratic lawmakers is urging the Commodity Futures Trading Commission to issue a rule that would aim to rein-in prediction markets, curb insider trading and prohibit certain types of event contracts.

In a letter first shared with CNBC and sent to the CFTC on Thursday, a group of congressional Democrats led by Jeff Merkley of Oregon., called on the federal agency to address “the rapid erosion of integrity” within prediction markets such as Kalshi and Polymarket.

“We strongly encourage you to use your authority to preserve the intent of prediction markets, and congressional intent behind the Commodity Exchange Act, by issuing a rule that prevents insider trading and corruption in the market and prohibits event contracts on the outcome of elections, war and military actions in the U.S. or abroad, sports, and government actions without a valid economic hedging interest,” the lawmakers wrote.

Sens. Richard Blumenthal of Connecticut, Chris Van Hollen of Maryland, Sheldon Whitehouse of Rhode Island and Rep. Jamie Raskin of Maryland also signed the letter.

Prediction markets have surged in popularity in the last year, drawing increased attention from lawmakers, particularly after a series of bets were placed on the platform Polymarket ahead of major world events.

Last week, a U.S. soldier was arrested for bets he allegdly placed on Polymarket ahead of military action in Venezuela that earned him $400,000. Kalshi, another prediction market giant, suspended and fined three candidates for elected office for allegedly trading on their own campaigns.

A series of bills introduced since the start of the year aim to curb insider trading and in some cases bar event contracts on sports, elections, military and government actions. Merkley led a bill in March that would prohibit certain government officials from using prediction markets entirely. Another bill, introduced by Merkley in the Senate and Raskin in the House, would bar prediction market bets on elections, war and sports.

In the letter, the group says event contracts tied to election outcomes “pose a danger to our democracy and elections.”

“These types of contracts did not exist before 2024 in the United States and for good reason,” they wrote. “Election-related prediction contracts create a financial incentive for political insiders involved in elections to subvert the will of American voters by altering their behavior.”

Sports are the most popular type of event contract by volume, making up almost 90% of bets made on Kalshi in the year ending in February, according to the Congressional Research Service. While sports also made up the biggest single category on Polymarket, the category accounted for 38% of event contracts on that platform, the report found. The companies have also drawn the ire of state regulators and casinos, who argue sports event contracts are simply gambling.

“Event contracts on the outcome of a sports game or event are far from the intent of the CFTC’s mission. They are one of the most egregious examples of how these contracts represent gambling and violate states’ rights to regulate this activity,” the lawmakers wrote.

The CFTC issued a call for public comment in March as part of its rulemaking process.

“Today’s action is an important step in the Commission’s continued effort to promote responsible innovation in our derivatives markets,” CFTC Chair Michael Selig said in a statement announcing the rulemaking period, which closed Thursday. “This begins the process of new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act, while reassuring the American people that the CFTC will exercise its exclusive jurisdiction over prediction markets.”

The CFTC’s rulemaking comes as the agency has fought against states who have tried to regulate prediction markets, arguing that authority belongs to the federal government.

The CFTC has filed lawsuits against several states that had issued cease and desist orders to prediction markets, saying they violated gambling laws. A federal appeals court in April ruled that New Jersey regulators could not 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 in March 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.