U.S. Sen. Richard Blumenthal is the latest federal lawmaker wading into the regulation of prediction markets, proposing legislation that aims to mitigate fraud, prevent underage usage and bar individuals from using nonpublic information in wagering.
These online platforms have exploded in popularity in the U.S., but have also prompted accusations of fraud and insider trading. Concerns from Congress grew amid specific predictions related to U.S. military action in Iran and the capture of Venezuela’s leader on popular sites like Kalshi and Polymarket.
The Connecticut senator planned to introduce the “Prediction Markets Security and Integrity Act” Wednesday with U.S. Sen. Andy Kim, D-N.J. The wide-ranging bill would prohibit individuals or prediction market operators from using “material, nonpublic information” in wagering and prevent them from creating or participating in listings that present a conflict of interest. It would restrict operators from offering listings that are susceptible to “manipulation or fraudulent activities” like war, death or military action.
It would also bar prediction markets from targeting individuals and advertising to individuals under age 21 as well as anyone with gambling disorders or addictions. And it would require site operators to verify users’ names, ages and locations.
Other provisions in the bill include restricting artificial intelligence from tracking the wagers of individuals or targeting a specific person with a promotion or offer.
Platforms like Kalshi argue they operate differently than sports betting and gambling at a casino. Individuals are buying event contracts about real-world events, functioning “similar to the way that stock and derivatives exchanges work,” according to Kalshi’s website.
But critics see it as effectively the same practice, circumventing states’ sports betting laws and operating in places that have banned the practice. Connecticut authorized sports wagering in 2021, but it remains illegal in 11 states. Blumenthal’s bill defines these markets as offering “services that are substantially the same as betting, wagering, gambling and sports gambling.”
Blumenthal and Kim said the absence of state regulations around prediction markets has led to “fixing of wagers based on insider information or manipulation of outcomes,” according to the bill’s text.
The bill would also prevent prediction markets from operating in a state unless they’re authorized under a state wagering program approved by the attorney general. The program would need to create or designate an entity that would regulate prediction markets and enforce the wagering laws in that state.
“Prediction markets have become a haven for insider trading, market manipulation and underage gambling. These billion-dollar businesses are turning war into a casino game and creating a market for national security leaks,” Blumenthal said in a statement. “My measure — the Prediction Markets Security and Integrity Act — puts guardrails on this out-of-control industry. It bans dangerous and unethical bets and protects consumers from fraud and other predatory practices.”
Prediction markets are overseen by the Commodity Futures Trading Commission, an independent federal agency that has authority over derivative markets. In response to state litigation against these platforms, CFTC Chairman Mike Selig said last month that his agency has “exclusive jurisdiction over these derivative markets.”
“Today, the CFTC is taking an important step to ensure that these markets have a place here in America and have the integrity and resilience and vibrancy that our derivatives markets deserve,” Selig said in a video posted to the platform X. “To those who seek to challenge our authority in this space, let me be clear: We will see you in court.”
Blumenthal and a group of other Democratic senators wrote to the CFTC last month about their concerns over prediction contracts that “incentivize physical injury or death” and whether the chairman would restrict any contract that “resolves upon or closely correlates to an individual’s death.”
Kalshi ultimately didn’t pay out the wagers on whether Iran’s supreme leader would be out by a certain date. The online platform said it doesn’t allow transactions “directly tied to death,” according to The Washington Post. Ayatollah Ali Khamenei was killed during the coordinated strike by the U.S. and Israel.
In his legislation, Blumenthal wants to return regulatory oversight of prediction markets to the states. That will likely be challenged by the CFTC, which has claimed that authority.
The Connecticut Mirror reached out to CFTC and prediction markets Kalshi and Polymarket for comment on the legislation but did not hear back in time for publication.
Blumenthal and Kim join a list of other lawmakers on both sides of the aisle who want to implement various guardrails on prediction markets.
One bipartisan bill in the House would block the listing of event contracts for sale regarding “terrorism, assassination, war, gaming (sports or athletic competitions), or illegal activity.” A similar bicameral bill was introduced Tuesday that would ban these contracts related to war, assassination and someone’s death.
A pair of Democratic senators introduced a bill last week to prevent federal lawmakers, the president and the vice president from trading event contracts on prediction markets.
It’s an issue that U.S. Sen. Chris Murphy has also zeroed in on, raising concerns over bets that were placed just hours before the U.S. engaged in hostilities in Iran. Murphy accused those with insider knowledge of placing those wagers and reaping big payouts.
Murphy told reporters at the U.S. Capitol last week he plans to introduce legislation soon that would ban trades on government actions.
“Nobody should be making bets on if the United States is going to war or what words President Trump is going to use in a speech,” Murphy said last week. “Those are fundamentally corrupt markets, because there are people on the inside who know the answer, and it perverts the decision-making process.”
The Connecticut Mirror/Connecticut Public Radio federal policy reporter position is made possible, in part, by funding from the Robert and Margaret Patricelli Family Foundation.
This story was originally published by the Connecticut Mirror.
