Bill Introduced to Ban ‘Insider Trading’ by Federal Officials on Prediction Markets

The bill was introduced by Rep. Richie Torres (D-NY) and comes in the wake of reports that a trader on Polymarket won more than $400,000 on $30,000 bet that Venezuela president Nicolás Maduro would be removed from office by the end of the month, placed just hours before the U.S. raid that captured him.

The bet’s placement raised suspicions that the trader was acting on non-public insider information, something that is prohibited in equities markets. Prediction markets and the companies that offer them, like Kalshi and Polymarket, are currently regulated by the Commodities and Futures Trading Commission, although several states have sought to ban them claiming the operate as illegal gambling platforms.

“The most corrupt corner of Washington, D.C. may well be the intersection of prediction markets and the federal government—where insider trading and self-dealing are no longer imagined risks but demonstrated dangers,” said Rep. Torres, in a statement. “We ignore this plain-sight corruption at our own peril.”

Prediction markets and their potential to influence official government actions through insider trading have also come under scrutiny in the Senate. Sen. Chris Murphy (D-CN) posted a clip on X last week showing the final 30 seconds of a White House press briefing with a countdown clock showing the event lasted just under 65 seconds, generating a payoff for traders who had bet on the conference lasting no longer than an hour and five minutes.

“Who cares about the length of a press conference. What idiot is betting on that?” Murphy asked. “It’s insane we allow this.”

Not everyone agrees there’s a problem, however. “Academically speaking, prediction markets are one of the most effective tools for rooting out inside information and maximizing the efficiency and speed of information transmission,” Loxley Fernandes, the CEO and co-founder of DASTAN, owner of the prediction protocol Myriad, told Decrypt.

Related: Prediction Markets Emerging as New Flash Point Between Federal and State Regulators

“To date, we have looked at modern prediction markets as alternative casinos—and I believe this framing is incorrect,” he added. “When viewed through the lens of real potential—capital and information efficiency—insider trading can actually function as a feature, not a bug.”

The new bill nonetheless would ban federal officials from participating in the markets if they possess “material non-public information” about an event or the ability to influence it.

The legislation, and the Maduro parlay are likely to fuel the debate over whether, how, and who should regulate prediction markets, which have exploded in popularity in the past two years. Currently, the purchases of binary contracts (typically yes/no, or over/under) on prediction markets are officially classified as futures contracts, not wagers, and thus fall under the jurisdiction of the CFTC.

But many states view them as gambling bets, especially as the markets push into offering contracts on the outcome of sporting events. As such, the states argue they are either illegal per se, or fall under the jurisdiction of state gaming authorities and must be licensed.

The proposed federal ban on insider trading, however, would treat the exchanges more like equities markets and could pull prediction markets into the ongoing debate on Capitol Hill over whether House members and Senates should be allowed to buy and sell stocks while in office.