Prediction Markets: Lawmakers Eye Setting Guardrails

When President Donald Trump fired Attorney General Pam Bondi on April 2, the odds were high that Environmental Protection Agency Chief Lee Zeldin would take her seat.

That was according to the bets trending in early April on the home page of Kalshi, one of two leading online prediction markets that allow users to bet on the outcomes of just about anything from sports, to politics, elections, Iran, Venezuela, and even what Trump will say.

The odds on Zeldin were in response to a posted question about who would be Trump’s next attorney general. Anonymous users of Kalshi and Polymarket — the largest prediction market, which posed a similar question — can place bets on their choice by buying event contracts on the outcome.

While prediction markets have been around for a long time, they are drawing particular criticism this year from bipartisan groups of lawmakers amid concerns over insider trading and market influence.

Neither Polymarket nor Kalshi responded to requests for comment. Each issued statements on March 23 saying they have tightened their rules around insider trading and market manipulation.

Suspicions about these rapidly growing markets arose immediately following the capture of former Venezuelan President Nicolás Maduro on January 3. An anonymous trader placed a series of unusually large bets on Polymarket in the days leading up to his capture — including just hours before it was announced — netting the trader more than $400,000 in winnings.

The incident raised concerns for some that the trader had inside information from the Trump administration about the surprise raid, according to media reports.

Likewise, on February 27 — the day before the U.S. started bombing Iran — hundreds of large bets were placed on Polymarket predicting the strike, resulting in hundreds of thousands of dollars in winnings, according to a report in The New York Times, which analyzed the incident: “It was relatively uncommon for someone to bet a significant sum of money that a U.S. strike would happen by the next day,” the report said.

The same pattern of large last-minute bets made this year shortly before several other geopolitical events occurred has intensified calls for federal action to rein in these markets, each of which has experienced explosive growth in recent months.

“There’s no getting around the fact that any prediction market where somebody knows or controls the outcome of a bet is ripe for corruption,” Senator Chris Murphy (D-CT) said in a statement. “Even worse, prediction markets are also an avenue by which government decisions get influenced by who’s making money off them, and that should be unforgivable to the American public.”

Murphy is co-sponsoring the Banning Event Trading on Sensitive Operations and Federal Functions (BETS OFF) Act with Rep. Greg Casar (D-TX). The legislation targets prediction markets and seeks to ban wagering on government actions, terrorism, war, assassination, and events in which someone knows or controls the outcome.

Craig Holman, a lobbyist on ethics, lobbying, and campaign finance at Public Citizen, said that the heat has been turned up on lawmakers to take action, given multiple incidents of suspicious activity that seems to point to insider trading and raise national security concerns.

“We haven’t seen this sort of thing before — the timing, with big money bets, that has been so successful,” Holman said. “It used to be more like a regular gambling market, where it was all chance and some people won, some people lost, but rarely did you see people placing half a million dollars down on a bet 15 minutes before an event happened.”

Public Citizen endorses the BETS OFF bill as well as the STOP Corrupt Bets Act, introduced by Sen. Jeff Merkley (D-OR) and Rep. Jamie Raskin (D-MD), which would ban prediction market contracts on elections, war, and government actions. It would also prohibit entities regulated by the Commodity Futures Trading Commission (CFTC) from listing bets on politics, sports, and military actions to prevent market manipulation.

Congress is “ringing the fire alarm that something needs to happen. Let’s hope that it does,” said David Bieri, a Virginia Tech economics professor who studies these markets. There is major concern that large bets could influence market outcomes, he said. With the upcoming midterm elections, this is likely helping to fuel the increasing number of prediction market-related bills being introduced in Washington.

Meanwhile, a battle is brewing between states and the federal government over sports-related betting on the prediction platforms.

States argue that the platforms are conducting unlicensed, illegal online gambling outside of state-regulated sports betting. The platforms and the CFTC, which regulates prediction markets, argue that sports-related event contracts are structured as “swaps” or futures contracts and as such are in the agency’s domain.

On April 6, a federal appeals court may have settled that battle, at least for now. In a 2-1 decision, the court found that the CFTC has exclusive jurisdiction over sports-related event contracts.

The case arose last year after New Jersey tried to block Kalshi from offering such contracts. Kalshi sued the state, arguing that the contracts are swaps and regulated by the CFTC. A federal district court issued a preliminary injunction against New Jersey in April 2025, which the state then appealed.

Several other states, including Connecticut, have sued the prediction markets over sports-related contracts. The CFTC has sued Connecticut, Arizona, and Illinois in separate lawsuits, arguing again that prediction markets are on its turf.