The seven House members may have affirmed the commission‘s authority over prediction markets, but asked questions about its inaction on insider trading.
Lawmakers Press CFTC on Insider Trading in Prediction Markets
A bipartisan group of seven U.S. House representatives has directly challenged the Commodity Futures Trading Commission (CFTC) to explain its enforcement record regarding insider trading on prediction market platforms. In a letter sent to CFTC Chair Michael Selig, the lawmakers acknowledged the agency’s asserted jurisdiction over event contracts but expressed profound concern over its perceived inaction on suspicious trades tied to real-world conflicts.
The letter, dated Monday, cites the CFTC’s authority under the Commodities Exchange Act to prevent evasion of swap provisions, effectively affirming Chair Selig’s position that platforms like Kalshi and Polymarket fall under federal, not state, regulatory oversight. However, the representatives sharply questioned the agency’s policing of what they termed “morally obscene” event contracts, specifically referencing trades on U.S. military actions in Iran and Venezuela. They noted that suspicious trading patterns, aligned with the timing and outcomes of such actions, have not been met with decisive enforcement.
“Such corrupt trades deserve swift and decisive oversight,” the letter states. “Allowing these contracts to persist raises troubling concerns about the Commission’s desire and capacity to fulfill a global regulatory role.” The lawmakers have set an April 15 deadline for Selig to respond to six specific questions probing the CFTC’s investigative protocols and resource allocation for such cases.
Federal vs. State Regulatory Battles Intensify
The scrutiny from Congress arrives amid a complex legal landscape where the CFTC’s authority is contested both in federal courts and by state gaming regulators. Several state authorities have filed lawsuits alleging that prediction market platforms are illegally operating as sports betting venues. The CFTC, under Selig, counters that these event contracts are legally defined as “swaps,” placing them squarely under the agency’s federal purview.
A pivotal recent decision saw the U.S. Court of Appeals for the Third Circuit uphold a lower court ruling that blocked New Jersey gaming authorities from pursuing enforcement actions against Kalshi. In a 2-1 decision, the appellate court found that Kalshi demonstrated a “reasonable chance of success” in arguing that federal commodities laws preempt state-level gambling regulations. This ruling provides a significant, though not universal, legal shield for prediction market operators in certain jurisdictions.
CFTC Enforcement Director Signals Focus on Material Cases
The lawmakers’ letter follows public remarks by CFTC Enforcement Director David Miller, who addressed the insider trading concerns. Miller indicated the commission’s enforcement priorities would target cases involving the misuse of material non-public information—such as tips from insiders—but suggested the agency would not dedicate finite resources to what it considers “trivial” instances. This nuanced stance has prompted legislative proposals from some Democratic lawmakers seeking to explicitly ban political event contracts and strengthen oversight.
The ongoing dialogue highlights the growing pains of a nascent industry operating at the intersection of finance, politics, and technology. As prediction markets gain traction for their forecasting accuracy, regulators and legislators are grappling with how to address potential manipulation without stifling innovation. The CFTC’s responses to the House letter, due in mid-April, are expected to clarify the agency’s strategic approach to these contentious markets.
Source: Representative Seth Moulton
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