Lawmakers Press CFTC to Warn Federal Employees About Event Contracts

At least 42 Democratic lawmakers have written the US commodities regulator and the US Office of Government Ethics, demanding that it warn federal employees not to use inside knowledge to trade in prediction markets.

The letter, addressed to Commodity Futures Trading Commission Chair Mike Selig and the Office of Government Ethics, was prompted by “multiple incidents” that have fueled “speculation about possible insider trading in prediction markets by federal employees,” according to the letter. 

“We ask that the Commodity Futures Trading Commission and the Office of Government Ethics circulate executive branch–wide guidance explaining that federal employees must refrain from insider trading in prediction markets,” they wrote.

Prediction markets, which allow users to trade contracts on the outcomes of future events, have faced increasing scrutiny over allegations of insider trading and potential violations of gambling laws. The two largest platforms, Kalshi and Polymarket, have announced plans to introduce guardrails to prevent potential incidents.

Venezuela capture bet, White House speech contracts flagged

Among the incidents flagged in the letter included users who bet on the capture of Venezuelan leader Nicolás Maduro and others who wagered on the length of White House press secretary Karoline Leavitt’s speech on Jan. 7.

“More recently, it has been reported that a number of users engaged in suspicious trades relating to the invasion of Iran and the death of Ayatollah Khamenei, sparking national security concerns about signaling impending attacks, and on whether former DHS Secretary Kristi Noem would be fired,” the lawmakers wrote.

Related: Prediction market transactions surge on geopolitical bets, media coverage

The group is requesting a briefing and answers to a range of questions by April 13, including whether the CFTC has investigated or received any reports of federal employees engaging in insider trading on prediction markets.

They are also seeking information on what steps the CFTC is currently taking to detect and prevent insider trading by federal employees.

Lawmakers argue the STOCK Act is being violated

Former President Barack Obama signed the STOCK Act into law in 2012 to clarify and confirm that government officials may not use material, nonpublic information for their personal gain.

In the latest letter, the lawmakers argued that the CFTC has declared that contracts on prediction markets are regulated derivatives, which means they are covered under the STOCK Act.

“The CFTC has determined that event contracts are derivatives that depend on the occurrence or non-occurrence of an event with a potential financial, economic, or commercial consequence,” they wrote.

“Thus, the CEA’s prohibition on government officials engaging in insider trading also applies to such activity in prediction markets.”

Magazine: When privacy and AML laws conflict — Crypto projects’ impossible choice