U.S. Congress launches insider trading probe into Polymarket, Kalshi

The U.S House Oversight and Governance Reform Committee has launched an investigation into prediction markets for alleged insider trading. 

In a CNBC interview, Congressman James Comer (R-Kentucky), Chair of the Oversight Committee, claimed that prediction markets are “the wild west.” He added, “this is so new, and there are no written laws. Prediction markets have never been a problem until recent months.”

Comer cited the U.S soldier who profited by over $400K after betting on Venezuelan President Nicolás Maduro’s capture using insider intelligence.

He also mentioned the insiders who benefited from bets on the U.S-Iran war, alongside politicians trying to manipulate markets tied to their election races. 

 He continued, 

We launched the investigation to see how widespread this (insider trading) is. But also to prove a case that we’ve got to pass some type of legislation like banning members of Congress, government employees, and people in the President’s administration from prediction markets.

In fact, a recent report showed that insiders on Polymarket made over $2.4 million on Iran bets. For Comer, the widespread insider trading activity is a sign that “Congressional action may be necessary.”

House press Kalshi, Polymarket for internal controls against insider trading

Kalshi is one of the largest prediction markets regulated by the Commodity Futures Trading Commission (CFTC). Its rival, Polymarket, has gotten approval to re-enter the U.S market, but has a massive global market share thanks to its lack of KYC (Know Your Customer) requirements.   

Similarly, Kalshi has expanded to 120 global markets. However, the lack of KYC provisions for offshore markets is now raising concerns about bad actors gaming the markets. In a letter to Kalshi’s CEO Tarek Mansour, the Committee pressed, 

The rapid global expansion of Kalshi’s platform raises questions about whether internationally placed event contracts are subject to equivalent identity verification and insider trading prohibitions as domestic event contracts.

A similar letter was sent to Polymarket’s CEO Shayne Coplan. Now, the Committee wants to know their KYC systems, whether it applies to global users, the trading history of any U.S government employee, including military officers, among others. 

Worth noting though that regulatory pressure is also building overseas. 

For example, India has banned prediction markets under the Promotion and Regulation of Online Gaming Act (PROGA). Recently, the Ministry of Electronics and Information Technology (MeiTY) flagged VPNs (virtual private networks) being used to bypass domestic restrictions on these betting markets.

Final Summary

• The U.S Congress has officially launched an investigation into Polymarket and Kalshi for insider trading to help inform policy formulation. 
• India is cracking down on prediction markets and their enablers (VPNs), underscoring heightened global regulatory pressure.