(CNN) — The expansion of political prediction platforms like Kalshi and Polymarket has raised concerns over potential insider trading as candidates and their campaigns become more involved in betting on specific political outcomes. With over $20 million in trading volume for midterm-related questions, these platforms allow users to wager on events such as candidate endorsements, withdrawals, and debate appearances, making it easier for those with insider knowledge to profit from their information.
Prediction markets for Senate, House, and governor races have proliferated, and many of these offer bets on events that can be predicted with relative certainty. According to a recent analysis by the nonpartisan Anti-Corruption Data Collective, this trend is concerning because people close to candidates often have access to information that isn’t available to the public.
Michael Hornsby, co-director of the Anti-Corruption Data Collective, emphasized that the legal nature of these transactions creates a risk for corruption. “All of these things are knowable by the candidates, their campaigns, and by people close to them,” Hornsby stated.
This year, the Biden administration attempted to prohibit markets that focused on election outcomes, but a federal appeals court rejected that initiative. In contrast, the Trump administration endorsed the growth of prediction markets and is working on regulations to support them, according to CNN reporting.
Concerns About Insider Knowledge
Currently, prediction sites provide an average of 44 specific markets for each race, beyond just who might win or lose. Critics argue that this environment creates incentives for individuals to trade on insider information. This issue gained national attention earlier this year when a White House teleprompter operator was found to be engaging in insider trading on Kalshi and subsequently settled with federal regulators for $65,000.
Both Kalshi and Polymarket claim to have procedures in place to prevent insider trading. Kalshi has suspended at least six political candidates this year for betting on their own races, which breaches their platform rules. Bobby DeNault, head of enforcement at Kalshi, noted that the narrow scope of material information could actually make it easier to prove insider trading in some cases. Meanwhile, Polymarket has hired a former FBI official to oversee investigations and refers suspicious cases to the Justice Department.
A recent analysis from the Anti-Corruption Data Collective raised specific concerns about unusual trading activity surrounding Graham Platner, a Democratic candidate for the Maine Senate seat. Platner, who won the nomination in June, withdrew from the race shortly after allegations of sexual assault surfaced. The report noted a surge in trades predicting his withdrawal on the eve of these allegations becoming public, suggesting the possibility of insider knowledge influencing betting patterns.
Kalshi’s lobbyist, John Bivona, stated the company enforces stringent standards to prevent participants who could influence outcomes from making bets. He reiterated that Kalshi conducts thorough screening for suspicious trading activity and adheres to a stricter standard than federal insider trading laws.
As political events continue to unfold, the ramifications of these prediction markets and their relation to insider knowledge will likely remain a subject of scrutiny both in public discourse and regulatory discussions.
