Betting on Prediction Markets Turns an Old Problem Into a Fresh Political Issue

Prosecutors and politicians are zeroing in on prediction markets, probing whether federal employees are using them to win big off insider information. Existing laws already forbid such schemes. Yet expect a push for new legislation — a popular exercise at Washington when an old problem emerges under new management.On Thursday, CNN reported in an “exclusive” that the United States Attorney’s Office for the Southern District of New York “recently met with representatives of Polymarket.” The federal prosecutors “are exploring whether certain lucrative bets … have violated insider trading and other laws.”Prediction markets are financial exchanges, but they allow users to wager on everything from how many times President Trump would mention God in his Thursday night address to the NCAA basketball tournament. Polymarket, “the World’s Largest Prediction Market,” has parlayed this model into exponential growth.In 2023, Polymarket handled $73 million in trades a month. That number multiplied over 274 times to pass $20 billion earlier this year. Polymarket’s chief competitor, Kalshi, saw its valuation skyrocket to $11 billion in December from $1.8 million in 2023.Wagering on the presidential election of 2024 was a boon as commentators cited the betting markets in place of polls. A former CNN commentator, Ryan Girdusky, judges that the markets do little more than reflect conventional wisdom. Yet each unpaid plug promoted the lure of easy money, followed by concerns about rigging the game.In January, Polymarket refused to pay out $10.5 million in wagers on an American “invasion” of Venezuela, arguing that extracting the country’s indicted leader, President Nicolas Maduro, didn’t meet that definition. Suspicions about insider information soon fell on a $30,000 bet, placed on January 2, that the strongman would be gone by the end of the month. A day after that wager, Mr. Maduro was in handcuffs and heading to America for trial, and the $30,000 was set to pay out about $437,000. It could be a case of having sight beyond sight, or of an insider using advance knowledge to cash in on a sure thing.The Department of Justice’s securities and commodities fraud unit is also looking into the industry. Attention has fallen on one trader who won almost $1 million on Polymarket with a string of predictions on Iran. A winning streak like that prompts scrutiny at casinos, as it did on “the luckiest man in America,” Michael Larson, in 1984.Competing on “Press Your Luck,” Larsen won over $110,000 — the most ever on the gameshow — after memorizing patterns on the board to avoid “whammies” and land on prizes. While he used only what he gleaned from TV, acting on information gained from government service is a violation of law and trust.Last week, Ambassador Rahm Emanuel sent the AP a “far-reaching” proposal to ban federal employees and their families from prediction markets. A potential 2028 Democratic presidential candidate, the former Chicago mayor and congressman said he’d create a division in the Justice Department to investigate such wagers.“Somebody clearly with inside information inside the government was making bets, made money,” Mr. Emanuel told AP of the Venezuela and Iran wagers. “You have fellow Americans … putting their lives on the line, and you’ve got somebody else sitting in his or her basement placing bets on it.”Mr. Emanuel focused his ire on Mr. Trump, saying that “all of Washington has become so accustomed to this amorality and immorality” that the capital “needs a good power washing.” Mr. Trump’s son, Donald Trump Jr., is an advisor at both Polymarket — where he’s an investor — and Kalshi. A spokeswoman for Polymarket, Carissa Felger, told CNN that the company “maintains and enforces the highest standards” and that they “proactively work with regulators and law enforcement.” However much a business is worth, they don’t want to run afoul of government regulators who have limitless resources.With so much money being made, it’s inevitable that politicians would sense a campaign issue. Yet new legislation, or a ban extended to families of federal employees, would be redundant. Those with inside information are already on notice: When it comes to prediction markets, the safest best bet is to stay away — and don’t press your luck.

Betting on Prediction Markets Turns an Old Problem Into a Fresh Political Issue

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