U.S. lawmakers challenge CFTC over silence on prediction market insider trading
A growing group of U.S. lawmakers is turning up the pressure on the Commodity Futures Trading Commission (CFTC), accusing the agency of failing to adequately police insider trading and ethically fraught contracts in prediction markets tied to geopolitical and military events.
Seven members of the House of Representatives have sent a formal letter to CFTC Chair Michael S. Selig, questioning why the regulator has not used its existing powers more aggressively. Under the Commodity Exchange Act, the CFTC has broad authority “to apply its rules and regulations for the purpose of preventing evasion of the underlying swap provisions.” According to the lawmakers, that authority clearly extends to at least some forms of prediction market activity.
At the heart of their criticism are event contracts linked to possible U.S. military operations in countries such as Iran and Venezuela. The signatories describe these products as “morally obscene,” arguing that it is deeply problematic to allow individuals to profit based on the timing and likelihood of armed conflict or covert interventions. They point to trading patterns that, in their view, raise serious questions about whether non‑public government information or privileged intelligence has been used for profit.
The letter highlights what lawmakers see as a structural failure, not just a handful of bad trades. They say that the “prevalence of event contracts that appear to flout United States law is concerning and indicative of a sector lacking proper oversight.” Although some of the most suspicious trading appears to have occurred outside U.S. borders, the members emphasize that this should not deter the CFTC from bringing enforcement actions when U.S. law applies or when U.S. persons are involved.
“Such corrupt trades deserve swift and decisive oversight,” the letter states, arguing that allowing these contracts to operate unchecked sends the wrong message to market participants and the broader public. In their view, regulatory passivity not only undermines the credibility of the CFTC but also raises “troubling concerns about the Commission’s desire and capacity to fulfill a global regulatory role” as other countries look to U.S. standards in the digital asset and derivatives space.
To force a more concrete response, the House members have submitted a set of six detailed questions to Chair Selig, requesting answers by April 15. These questions reportedly cover the CFTC’s interpretation of its jurisdiction over event contracts, how it evaluates potential insider trading in prediction markets, what resources are being devoted to monitoring this activity, and whether new rulemaking or guidance is under consideration.
The political pressure comes at a time when prediction markets themselves are already facing mounting legal scrutiny in the United States. Several state-level gaming regulators have filed lawsuits or administrative actions targeting platforms such as Kalshi and Polymarket. These cases center on whether the products being offered constitute illegal gambling, unregistered derivatives, or something in between-and, crucially, where the CFTC’s oversight begins and ends.
While the lawmakers’ letter effectively affirms that Congress believes the CFTC does have jurisdiction over at least some prediction market contracts, it also underscores that the overarching regulatory framework is still unsettled. There is no fully harmonized approach to whether event contracts should be treated as financial instruments, wagering products, or a new category that merits bespoke rules.
For its part, the CFTC insists that it is not ignoring the problem. Enforcement director David Miller recently pushed back against a widely held belief that prediction markets fall into a legal gray zone where insider trading prohibitions do not apply. “There’s a myth in mainstream media and social media that insider trading doesn’t apply in the prediction markets… That is wrong,” Miller said, stressing that existing statutes can reach misconduct involving confidential or non‑public information.
However, Miller also signaled that the agency is unlikely to launch broad sweep actions in the near term. Instead, he indicated that any enforcement activity will be selective, targeted at clear-cut cases involving the misuse of confidential information, rather than exploratory or precedent‑setting actions against every questionable event contract. That calibrated stance may be legally cautious, but it has done little to satisfy lawmakers demanding faster, more visible intervention.
The tension reflects a deeper policy dilemma: prediction markets occupy an uncomfortable space between financial innovation and ethical controversy. Supporters argue that markets forecasting elections, policy decisions, or geopolitical events can aggregate dispersed information and improve public understanding of risks. Critics counter that when contracts are tied to war, coups, sanctions, or covert operations, they can incentivize perverse behavior, undermine democratic processes, and create opaque avenues for those with inside knowledge to profit from instability.
Insider trading risk is particularly acute in geopolitical markets because a narrow set of actors-government officials, intelligence personnel, defense contractors, diplomats-may have access to highly sensitive information about impending military or foreign policy moves. If those individuals, or people connected to them, use that information to trade event contracts, the result is not just a financial crime but a potential national security concern.
The jurisdictional complexity of modern prediction markets amplifies those risks. Many platforms operate across borders, serve users in multiple time zones, and rely on blockchain-based infrastructure that can obscure identities or jurisdictions. Even when platforms restrict U.S. users on paper, technical workarounds can blur those lines. Lawmakers fear that a fragmented regulatory response creates an uneven playing field where bad actors can simply migrate to the least supervised venues.
The current clash between Congress and the CFTC also signals a brewing debate over how far regulators should go in limiting the types of events that can be turned into tradable contracts. Some legal scholars argue for a categorical ban on markets involving war, terrorism, or certain public health emergencies, on the grounds that they are inherently exploitative or dangerous. Others propose a more nuanced approach-allowing narrowly defined contracts where there is a clear public interest in improved forecasting, coupled with strict prohibitions on participation by officials with access to classified or market-moving information.
Behind the scenes, industry participants are watching closely. Platforms that want to operate in a compliant manner are seeking clearer rules on what is permissible, how contracts should be structured, and what obligations they have around know‑your‑customer checks, surveillance, and reporting suspicious activity. Inconsistent or delayed guidance from regulators can hinder legitimate innovation while doing little to stop rogue operators that ignore U.S. law altogether.
The House letter may ultimately be a prelude to more formal action. If lawmakers are dissatisfied with Selig’s answers, they could push for hearings, demand internal CFTC documents, or even propose legislation that explicitly defines the regulatory treatment of prediction markets and insider trading within them. That could include clearer statutory language on event contracts, mandated disclosures, or explicit bans on markets tied to certain categories of sensitive events.
At the same time, the CFTC must navigate practical constraints: enforcement budgets, evidentiary challenges in proving insider trading in opaque global markets, and the risk of losing high‑profile cases that could weaken its authority. The agency’s cautious tone suggests it is weighing the need for deterrence against the realities of litigating novel questions at the intersection of derivatives law, gambling statutes, and national security.
What is clear is that prediction markets are no longer a niche curiosity. As more capital flows into contracts linked to politics, policy, and conflict, the stakes for regulators, lawmakers, and market participants continue to rise. The confrontation between the House members and the CFTC over alleged insider trading and war‑linked event contracts may prove to be an early test case for how far the U.S. is willing to go in regulating the financialization of geopolitical risk.