As congressional Democrats tackle potential fraud in prediction markets, U.S. Sen. Chris Murphy, D-Conn., is seeking to crack down on wagers made on government actions and events where someone controls or knows the outcome in advance.
The scrutiny of these online platforms has become a hot topic recently, especially among Democrats, stemming from concerns over well-timed trades that were made on U.S. military action in Iran and the ouster of its supreme leader on popular sites like Kalshi and Polymarket.
Murphy has taken issue with bets made on Polymarket correctly predicting that the U.S. would engage in hostilities in the Middle East on the following day. He noted that most of those accounts were set up the day they placed those bets. He claimed that people in the White House or those close to officials who knew about military plans “cashed in.”
That prompted him to introduce a bicameral bill with U.S. Rep. Greg Casar, D-Texas, called the “BETS OFF Act.” Like other federal legislation proposed, it would prohibit wagers on terrorism, assassination and war. It would also ban trades on non-financial government actions and events where the outcome is known in advance or if someone has complete control of an outcome.
“This is long-overdue legislation, which would prohibit these prediction markets like Kalshi and Polymarket from offering markets to allow people to bet on government action, and on markets where there is one individual that controls the outcome of the bet,” Murphy said at a Tuesday press conference in Washington. “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.”
While he sees it as an issue of corruption, Murphy said his interest in this area also comes from a morality standpoint of monetizing events that deal with human life.
“What happens to us spiritually when every moral questions in this country just becomes a market? Don’t we rot a little bit inside when the question of famine in Gaza isn’t a question of what’s right and what’s wrong, but whether you can make money or lose money?” Murphy said.
“I think it is really important that there are certain matters that are not monetized by prediction markets, whether that be humanitarian disaster overseas or the fundamental moral question of whether we go to war or not,” he continued.
While the focus stems from concerns of profiteering and insider trading related to war and government actions, the bill would also prevent wagers on popular events like the Superbowl halftime show and the Academy Awards because someone knows the outcome beforehand.
Another example is betting on the words a politician or celebrity will say in a public speech. Murphy said there are speechwriters and others who are privy to that information.
There are some exceptions to the bill. Murphy said there’s a carveout for actions if the “underlying characteristic” is financial, commercial or economic. He said his bill would protect existing “mainstream financial markets” where trades are made on government actions like what the Federal Reserve will do on interest rates.
Platforms like Kalshi argue they operate differently from 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 legalized sports wagering in 2021, but it remains illegal in 11 states.
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.”
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.
Prediction markets like Kalshi and Polymarket didn’t immediately respond to requests for comment on the new legislation. The Connecticut Mirror also reached out to the White House for comment on Murphy’s claims that the White House or those with knowledge of military plans benefitted.
Ethics regulations that govern executive branch employees prevent them from participating in gambling activities while on duty for the government or on government property, according to a White House official. It also prohibits using non-public government information for personal gain.
Any legislation needs Republican votes since they control both chambers of Congress. Murphy and Casar said they are hopeful their legislation could gain some support from the other side of the aisle.
A handful of bills have already been introduced as prediction markets explode in popularity in the U.S. That includes interest from both of Connecticut’s U.S. senators.
Last week, Sen. Richard Blumenthal, D-Conn., proposed legislation that aims to mitigate fraud, prevent underage usage and bar individuals from using nonpublic information in wagering.
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 bar prediction markets from targeting individuals and advertising to individuals under age 21 as well as anyone with gambling disorders or addictions.
In his legislation, Blumenthal also wants to return regulatory oversight of prediction markets to the states. That will likely be challenged by the CFTC, which has claimed that authority.
“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. “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.”
Murphy said his bill goes a bit broader, but isn’t a comprehensive look into prediction markets. He said other pieces of legislation look to restrict sports betting on these platforms as well as the types of bets on elections.
“There will still be an infinite number of places where people can make bets,” Murphy said. “What we’re saying is that when the market is inherently and almost certainly rigged, that should be a place where people are protected from what is pretty regularly outright fraud.”
“For my part, this bill doesn’t cover the waterfront in terms of what is concerning in these markets,” he added, “but this seems to be the most urgent problem right now.”
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.
