NEW YORK CITY, New York: A surge in betting on real-world events, from elections to military actions, is putting prediction markets under growing scrutiny, as regulators and lawmakers question whether they are vulnerable to insider trading and abuse.
Recent incidents have raised concerns about how fair these platforms are. Massive bets placed ahead of major developments, including a ceasefire announcement involving Iran, and allegations of traders using non-public information have intensified calls for tighter oversight.
The issue is complicated by the fact that prediction markets operate under different rules across platforms. Some function under U.S. regulations, while others operate offshore with fewer restrictions, making it difficult to assess who is placing bets and whether they have access to privileged information.
"There has been very much a ‘laissez-faire' attitude toward the industry," said Richard Warr, professor of finance at NC State University. "Regulation always takes time to catch up."
Two of the biggest players, Polymarket and Kalshi, highlight the divide. Polymarket, which operates largely outside the United States, allows users to place bets using cryptocurrency and remain pseudonymous. Critics say this setup may make it easier for individuals with insider knowledge to participate, though the company maintains it verifies accounts behind the scenes.
Kalshi, by contrast, has been a U.S.-regulated exchange since 2020 and requires customers to provide identification, complying with "Know Your Customer" rules designed to prevent illicit activity. In recent weeks, it has positioned itself as a more compliant and transparent alternative.
"Not all prediction markets are the same," said Kalshi spokesperson Elisabeth Diana as calls grew for a crackdown earlier this month following the ceasefire bets. She added, "We support Congress and regulators taking action to police insider trading."
Concerns escalated further after the arrest of an army special operations soldier accused of using inside information to bet on Polymarket ahead of an operation targeting Venezuela's leader. Polymarket said it had flagged the activity and alerted authorities.
"We flagged this, referred it, and cooperated throughout the process," Polymarket CEO Shayne Coplan posted on X. "This happens constantly behind the scenes, despite what many are led to believe."
Kalshi said the same individual, identified as Gannon Ken Van Dyke, had attempted to place a similar bet on its platform but was rejected.
"Unlike competitors whose trading activity is mostly offshore and unregulated, we ban and police insider trading and don't allow war markets," a Kalshi spokesperson told the AP.
Authorities elsewhere have also taken action. Israeli officials earlier this year arrested two soldiers accused of trading on classified information. Kalshi has also banned political candidates from betting on their own campaigns after discovering such activity among U.S. candidates.
Regulatory pressure is mounting. While the federal government argues that prediction markets fall under the Commodity Futures Trading Commission's oversight rather than state gambling laws, several states disagree and are pursuing legal action.
"Gambling by another name is still gambling," said New York state attorney general Letitia James after suing two new players — Coinbase and Gemini — for allegedly operating illegal gambling businesses. "It is not exempt from regulation."
Lawmakers in Congress are also pushing for stricter rules or outright bans on betting tied to sensitive events such as wars or deaths. "There is no justification for gambling on lives," said Democratic Sen. Adam Schiff last month.
The debate carries political implications as well. Donald Trump Jr. has a financial stake in Polymarket and advisory roles with both Polymarket and Kalshi, while the Trump Organization is exploring the launch of its own platform, Truth Predict.
President Donald Trump has offered mixed views on the industry. "I was never much in favor, and I don't like it conceptually, but it is what it is," he said Thursday. "Now, I think that I'm not happy with any of that stuff."
