Rep. Seth Moulton, D-Mass., arrives for a House Democrats’ caucus meeting at the Capitol on Thursday, Nov. 15, 2018.
Bill Clark | CQ-Roll Call Group | getty images
A group of House Democrats pressed the Commodity Futures Trading Commission in a letter sent late Monday over why the agency has not taken action on bets placed on war and other government actions through offshore prediction markets.
The letter to CFTC Chairman Michael Selig, first obtained by CNBC, raises questions about the agency’s role in regulating prediction markets, which have recently surged in popularity and drawn the ire of a growing number of lawmakers.
“Recent high-profile examples of alleged insider trading on prediction market platforms related to U.S. government actions – including the military intervention in Venezuela and our recent attack on Iran – have heightened concerns that the CFTC does not have sufficient control over these fast-growing markets,” wrote the group led by Representatives Seth Moulton and Jim McGovern, both Massachusetts Democrats.
Bets placed on the timing of the ouster of Venezuelan President Nicolas Maduro and the US-Israeli attack on Iran have raised concerns about the potential for insider trading. On popular prediction markets like Kalshi and PolyMarket, users can buy event contracts on things like who will win the NCAA men’s basketball national championship or how long the Department of Homeland Security shutdown will last.
Kalshi is based in the US and says it prohibits controversial bets on topics such as war and is regulated by the CFTC. Polymarket is an offshore company – although it is available on a limited basis in the US – and for some this has been the location Headlining Event Contracts. Both companies recently announced self-imposed guardrails to curb insider trading on their platforms.
But House Democrats say more can be done to regulate those offshore businesses. The CFTC’s internal rules, as well as the Commodity Exchange Act, allow the agency to regulate when “swap activities outside the United States have a direct and significant connection with, or impact on, activities in United States commerce,” the lawmakers wrote.
“These provisions make it clear that the CFTC has the authority to police insider trading in the swaps markets and should enforce its existing rule prohibiting bets related to terrorism, assassination, and war,” the group wrote.
The CFTC and Polymarket did not immediately respond to requests for comment Tuesday.
Democratic representatives Gabe Amo of Rhode Island, Greg Kaiser of Texas, Jamie Raskin of Maryland, Dina Titus of Nevada and Yasmine Ansari of Arizona also signed. He questioned why the agency has not yet taken any public action against such bets, and whether it thinks it has the authority to regulate insider trading on prediction markets. And he asked whether the CFTC was made aware of “any conflicts of interest between major market participants and family members of executive branch officials, including the President of the United States?”
Donald Trump Jr. is an investor and unpaid advisor to PolyMarket, as well as an investor Kalshi’s strategic advisor. The Trump family social media company announced last year that it would launch its own prediction market platform, called Prediction of truth.
Lawmakers requested Selig to respond by April 15.
“Such corrupt trades deserve swift and decisive monitoring. The continuation of these contracts raises troubling concerns about the Commission’s willingness and ability to fulfill its global regulatory role,” they wrote.
Lawmakers have been struggling to rein in prediction market platforms, pushing a flurry of bills in recent weeks and months. Some are specifically designed to address threat of insider tradingWhile others take a broader approach and seek to ban certain types of event contracts, including sports, government actions, and war.
Moulton announced an officewide policy last month completely banning his employees from using prediction markets. In February a group of Democratic senators sent a separate letter to Selig expressing their concerns about event contracts “that encourage physical injury or death.”
Meanwhile, Selig has went after the stateThose who have tried to regulate prediction markets argue that that authority belongs to the federal government. The CFTC last week sued three states – Arizona, Illinois and Connecticut – that had issued cease-and-desist orders to prediction markets that violate gambling laws. On Monday, a federal appeals court in New Jersey ruled that gaming regulators cannot prohibit the use of calamitous wagers on sporting events.
“What we’re seeing is an effort by state gaming commissions to effectively nullify federal law,” Selig said on CNBC’s “Squawk Box” on Monday, before the New Jersey decision was released.
Disclosure: CNBC and Kalshi have a commercial relationship that includes a CNBC minority investment.
Correction: This story has been updated to correct the name of the Commodity Exchange Act. Dina Titus is a Democratic representative from Nevada. His name was misspelled in the earlier version.