Democrats take aim at ‘fundamentally corrupt’ insider trading on prediction markets

WASHINGTON (CN) — Congressional Democrats on Tuesday unveiled new legislation they said would clamp down on prediction markets that allow users to bet on real-life government actions, including war, to the tune of hundreds of thousands of dollars.

Lawmakers said the proposed bill was a long overdue remedy to concerns that Trump administration insiders and others with knowledge of government deliberations have leveraged their connections to profit massively off the war in Iran and military action in Venezuela, among other things.

“These are fundamentally corrupt markets,” said Connecticut Senator Chris Murphy, a sponsor of the Banning Event Trading on Sensitive Operations and Federal Functions Act, said during a news conference Tuesday morning. “They are rife with insider trading, and they offer incredibly perverse incentives, especially inside government, for government actors to push official decision making towards their financial interests.”

If made law, Murphy’s measure, abbreviated as BETS OFF, would ban prediction markets from allowing users to bet on government actions if someone knows the outcome in advance or if one person has complete control over the action.

The measure would also bar financial speculation and gambling on acts of terror, assassinations and wars.

Texas Representative Greg Casar, the House-side sponsor of the BETS OFF Act, told reporters the proposed bill would crack down on prediction markets as a “dangerous new venue” for government corruption.

“We shouldn’t live in a country where someone’s sitting in the Situation Room making decisions about war and peace, life and death, but those decisions could be driven by the fact that they have hundreds of thousands of dollars riding on that decision,” said Casar.

The prediction market Polymarket has drawn scrutiny in recent months for several high-profile trades in which users earned significant payouts betting on real-life events, including the Iran war and the Trump administration’s military operation in Venezuela. A Polymarket user earned roughly $400,000 in January after correctly predicting the ouster of Venezuelan President Nicolas Maduro.

And after Trump announced strikes against Tehran earlier this month that killed Iranian Supreme Leader Ali Khamenei, another user trading under the name “Magamyman” made more than $550,000 betting on the date military action against Iran would begin.

Donald Trump Jr., the president’s eldest son, is an adviser to Polymarket. The White House, however, has denied that anyone with access to insider information was behind the high-dollar trades on the service.

Though the Democrats’ proposed bill would slap new limits on the type of trades users can make on prediction markets, the measure would not ban services such as Polymarket outright.

Standing in front of a poster displaying the Polymarket winnings of “Magamyman,” Murphy told reporters Tuesday he hoped his measure would be part of a “suite” of legislation to comprehensively regulate prediction markets.

“For my part, this bill doesn’t cover the waterfront in terms of what is concerning in these markets — but this seems to be the most urgent problem right now because there is such obvious, deep corruption happening inside the White House,” he said.

Oregon Senator Jeff Merkley and Minnesota Senator Amy Klobuchar unveiled legislation earlier this month that would block public officials from trading on prediction markets. And Connecticut Senator Richard Blumenthal last week introduced his own bill that would establish federal guardrails and expand states’ regulatory authority over such markets.

But while there’s been a broadening legislative push to regulate prediction markets, the effort has largely been led by Democrats.

Asked whether he was engaging with Republicans on his proposed legislation, Murphy signaled there had been little interest from his colleagues across the aisle. “I think this is a really hard issue for Republicans right now because their leader is cashing in off these prediction markets,” the Connecticut Democrat said. “Right now, there’s not a lot of evidence that Republicans are willing to stand up to President Trump when he’s making money corruptly.”

As of Tuesday afternoon, the proposed BETS OFF Act had yet to be assigned to a committee.

More than 2 million people trade across the 200,000 or so markets available on Polymarket. Traders don’t just bet on real-world events — they also stake money on sports and the value of cryptocurrencies, among other things. One user this week made more than $2 million betting on the outcome of a Spanish La Liga soccer match.

Until late last year, U.S. traders could not access Polymarket thanks to an order from the Commodity Futures Trading Commission, which fined the company in 2022 for failing to get regulatory approval. The company was temporarily based out of Panama, though it has offices in New York. Though the Trump administration has moved to ease restrictions on its use, Polymarket is still not fully regulated in the U.S.

Another prediction market known as Kalshi — which is regulated in the U.S. and requires users to identify themselves — has taken action to freeze markets related to the outcomes of some real-world events. Following the initial Iran strikes, Kalshi canceled bets on a market predicting Khamenei’s exit as supreme leader, saying that its rules prevent users from cashing out on death.

And Kalshi executives have distanced themselves from Polymarket’s business model.

“The poster being displayed in front of the United States Senate is from a company based in Panama, with no [know your customer rules] and is already illegal for U.S. users to use,” John Wang, head of crypto at Kalshi, told Courthouse News on social media Tuesday. “Don’t conflate regulated U.S. prediction markets with offshore ones.”

Casar, meanwhile, pointed out that while many people enjoy placing bets on prediction markets, the government needed to step in to ensure that those trading platforms weren’t “rigged.”

“I think we should have the ability for folks to go to a casino and play a poker game or a game of roulette,” the Texas Democrat told reporters. “But we have rules that say the house cannot rig the poker game. When people get on their phone and see these prediction markets, they expect there are rules to make sure the game isn’t rigged against them.”

Murphy argued there were certain parts of society that should not be monetized.

“What happens to us spiritually when every moral question in this country just becomes a market?” he said. “Don’t we lose something? Those heavy, weighty public policy questions, steeped in questions of morality, become empty and corrupt when they just become a moneymaking opportunity for people.”

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