Prediction markets like Polymarket and Kalshi could face a probe in the U.S. amid hightening regulatory scrutiny over these platforms. Federal prosecutors in Manhattan, New York are preparing to investigate if national laws like insider trading are overlooked and subsequently breached by these platforms.
Law enforcement officials from Manhattan have already started reaching out to popular prediction markets as part of the probe, CNN reported on Monday citing sources familiar with the matter.
During their recent meeting with Polymarket, the prosecutors discussed ideas on how to use present laws to curb misconduct on the platform. While Polymarket neither confirmed nor denied the meeting, its spokesperson told CNN that the platform aims to keep working with lawmakers to keep the platform legally compliant and safe for the investor community.
The development comes at a time when bets around the ongoing Iran war, TV series outcomes, and the arrest of Venezuelan president Nicolás Maduro resulted in suspiciously lucrative outcomes for market participants. The developments raised questions around the possibility of insider trading activities on the platforms.
Reports of a trader having minted $1 million around suspiciously accurate Iran bets on Polymarket had also made it to the headlines last week.
As per Nicholas Biase from the U.S. attorney’s office, various laws including insider trading, anti-money laundering laws, laws prohibiting manipulation, and various anti-fraud rules need to be strictly applicable to these emerging categories of financial markets, the report added.
For now, elaborate details on the reportedly ongoing investigation remain undisclosed.
Prediction markets allow people to purchase shares in the possible outcomes of future events. Typically, every contract pays out exactly $1.00 if the event happens and $0.00 if it does not.
In the U.S., multiple states like Nevada and Massachusetts have been cracking down on these platforms saying that these offer unauthorized and unlicensed betting services.
Over the weekend, U.S. Congress members Adrian Smith and Nikki Budzinski have introduced a new bill proposing a ban on government officials engaging with prediction markets to reduce chances of information leak, insider trading, and market manipulation.
The U.S. Commodity and Futures Trading (CFTC) is now doubling down on its efforts to draft the rules to oversee prediction markets. It said it intends to disallow these platforms from showing trading contracts that may be susceptible to manipulation among other proposed rules.
The CFTC is looking to gather public feedback on these proposed laws as part of the first steps to regulate the sector.