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This issue reveals the gap between the prediction market premise and what these things actually are, which is: unregulated prop gambling venues.

If things like Kalshi and Polymarket are prediction markets, then, at least as far as the intrinsic concerns of the market itself are concerned, insider trading is a good thing; literally part of the point.

If they are instead how they function today, then insider trading is a game-breaking fairness issue, like having a device to read your opponents cards in a poker game, and then they're a real problem.

You can tell what these businesses think their platforms are for by how they handle these issues.

Even if you buy the idea that Kalshi is a prediction market whose mechanism is gambling but whose product is accurate predictions, you don't have to buy the idea that insider trading is a good thing. Yes, in the rare occasion there exists someone with (a) insider information (b) confidence their actions won't impact their insider position and (c) access to capital - then you get extremely accurate predictions.

In every other case you get worse predictions. Since those who are predicting have to now construct their bets such that they know they can always get run over by an insider. So in the general case it reduces the ability of the predictors to push the market in the right direction, because they always have to risk manage the fact that someone out there might run them over with insider information.

Not just insider information, but insider access. If the outcome of some prop bet is under the control of a handful of people, those people can trivially conspire to produce whatever outcome is most profitable to them.
If people with more information profit at the expense of people with less information, isn't that exactly how things are supposed to work?

If you're approaching a market with hard facts, detailed comparisons and solid evidence; while I'm trading in the same market based on vibes and intuition, surely it's expected that your returns would be better, and mine worse?

> Even if you buy the idea that Kalshi is a prediction market whose mechanism is gambling but whose product is accurate predictions, you don't have to buy the idea that insider trading is a good thing.

Yes, and furthermore even if you’re one of those people who think insider trading in prediction markets is a good thing [1] that doesn’t somehow make it not illegal. The DoJ seems to be pursuing the theory that it constitutes wire fraud, which since “everything is wire fraud”, seems possible.[2] The CFTC has also claimed jurisdiction, which isn’t surprising since it claims jurisdiction over pretty much everything. If true this would mean some of the commodities trading regulations could be used as well, although insider trading rules in the US around commodities are generally less stringent than say for equities. In Europe I’m pretty confident that the EU market abuse regulations would cover insider trading in prediction markets, and make insider trading market abuse as it would constitute trading on material non-public price sensitive information. (European insider trading rules are stricter than the US in general).

[1] the standard argument in favour of this is not one I agree with, but people say that the benefit is that the inside information is revealed by people acting on it in the market and that this therefore benefits the non-insiders. How much you buy into this idea depends on how much you feel that non-insiders benefit from paying insiders for this more accurate price.

[2] https://www.freshfields.com/en/our-thinking/blogs/a-fresh-ta...

> If things like Kalshi and Polymarket are prediction markets, then, at least as far as the intrinsic concerns of the market itself are concerned, insider trading is a good thing; literally part of the point.

That depends on what the effects are.

Suppose that predicting things well requires both information and analysis. Early access to information is therefore a competitive advantage: Even if you're not as good at analysis, having the information before anyone else and then getting the analysis right 65% of the time is more often than not going to let you beat the people who get the analysis right 85% of the time once they have the information. Which is to say, it will make it less profitable for the people who are better at analysis to participate in the market, and then fewer of them will.

So the question is, what do you want? An answer which is right 65% of the time slightly sooner, or an answer which is right 85% of the time slightly later? It's valid to want the second one.

Courts have ruled that these markets are regulated under the CFTC. So they are regulated. Now as to whether it is properly regulated, thats a different matter.
Where do you see a difference? Like you said, there is a libertarian argument that can be made for why insider trading is desirable. If the bet is easily manipulable, like how many times someone will visit a place, then the rational response is for others not to bet on that market. The same argument still holds.

You can disagree with the libertarian argument, but I don't see how you can say that Polymarket et al. are something other than a prediction market. Can you explain where you see the difference?

Your surmise cuts both ways though; much of the stockmarket is fundamentally doing the same thing. It's just the prop bet is a normalized white collar activity.

I'd like regulations to cut into that too, so the market isn't just a weird "Did trump tweet something deranged today?"

In stock markets, insider trading is a big no not because it ruins someone's gambling habit, but because the entire concept of the corporation requires a certain amount of trust of financiers in financees. That whole pooling of capital thing, to do stuff that has too high a capital requirement to start individually. When shares are publicly traded, that trust is impossible when holders have to assume that they will be gamed by employee-owners and that would mean nobody outside the circle of those in the know would ever put in money and then you could just give up and declare that publicly traded corporations simply can't exist. "Don't bother investing, they will strip you".

Prediction markets don't have any "natural" reason like that for excluding insider trading. It's just "game designers" crying their hearts out when someone ruins their game by having an advantage.

The employee could not be an insider if his employer did not exists because of a lack of rules against him trading. The prediction market not existing would not make the insider any less of an insider (we are not tking about people inside the prediction market maker!)

> Prediction markets don't have any "natural" reason like that for excluding insider trading

Corporate employees abusing trust are doing it equivalently whether they trade securities or place bets. Government employees, similarly, don’t personally own the country’s data.

In a minority of cases, the information is one’s own, e.g. bets on how many times a person says a word. But most of the time, there is a breach of trust.

>Prediction markets don't have any "natural" reason like that for excluding insider trading. It's just "game designers" crying their hearts out when someone ruins their game by having an advantage.

I can think of a few very good reasons you would want to prohibit insider trading on prediction markets. Betting on war outcomes; being incentivised to commit war crimes or throw vital operational goals for financial gain. Wagering on public figures' jobs; being incentivised to harm them.

> Prediction markets don't have any "natural" reason like that for excluding insider trading.

No, they have a different reason. Consider the consequences of a sufficiently large prediction market bet on whether or not <head of state> will be assassinated this year.

Consider also the consequences of insiders and decisionmakers having an immediate financial incentive to take the other side of a bet whose outcome they control.

Of course there's a natural reason: conflict of interest. If someone bets on a release date or a product being cancelled, then they can gain for reasons contrary to the good of their employer.

Corporations depend on controlling the compensation to their employees in order to incentivize them to produce benefit to the corporation. If there is an uncontrolled route to compensation via a prediction market, then the corporation loses its ability to trade compensation for alignment with its objectives.

> The prediction market not existing would not make the insider any less of an insider

Correct, but the prediction market existing makes the insider less of an employee. (Actually, the prediction market not existing would make the insider more of an insider, in that if insider benefit via prediction markets is unregulated, corporations will be forced to limit the information and authority of its employees.)

I don't understand why it is a crime under current US law.

Prediction markets can only do sports gambling (the vast majority of their volume) because they self-certify under the CFTC. The CFTC doesn't have the same standards of "insider trading" as the stock market, because insider trading is the entire point of business at the CFTC!

If you're trading, like, oil futures or wheat futures or whatever, you are likely doing so specifically because you have inside information about your business needs or production that you want to hedge.

I understand why people are mad about gambling versus someone who has insider information, but under current US law I'm not sure that there is a case to be made.

> If you're trading, like, oil futures or wheat futures or whatever, you are likely doing so specifically because you have inside information about your business needs

Insider trading, in the U.S., is not legally about fairness but about theft. A firm hedging its own positions is using its information for its own purposes. A federal employee trading on what they heard is abusing the trust placed in them by the American people.

> Prediction markets can only do sports gambling (the vast majority of their volume) because they self-certify under the CFTC

Sports betting is still illegal in 11 states. They can only do what they’re doing because of legislation and enforcement lag.

> The CFTC doesn't have the same standards of "insider trading" as the stock market, because insider trading is the entire point of business at the CFTC!

True to some extent, but it’s still illegal to use non-public information gained from your firm to trade on personal accounts.

Isn't the entire point of prediction markets to surface insider trading as a feature and not a bug?

Short, casual reads

- https://jamaalglenn.substack.com/p/prediction-markets-were-d...

- https://money.com/prediction-markets-insider-trading/

More academic?

- https://mason.gmu.edu/~rhanson/insiderbet.pdf

AND

- https://www.youtube.com/watch?v=4yZKGbq1YmA

Discussion on possible solutions that references the academic view

- https://www.dopaminemarkets.com/p/how-to-solve-insider-tradi...

This is a case where normal people's ideas of fairness may never agree with the experts.
> “If you commit insider trading on Kalshi, that can and will at some point be a federal crime. It is a federal crime,”

Am I misunderstanding? It seems like two different statements he always conflates.

If it becomes a federal crime at some point, it will become illegal from that point — you can't prosecute people for acts committed before they were crimes.

The only way that this could be a federal crime right now is if the government starts prosecuting it under existing laws without any changes. I don't see that as likely.

IANAL, but my understanding is that they can make it a retroactive crime or clarify existing laws in ways that include prediction markets.

Don't assume safety.

Edit - was curious:

https://en.wikipedia.org/wiki/Ex_post_facto_law

So maybe not?

I'd love a judicial scholar's input.

It’s a federal crime once someone gets convicted for it. Without any precedent it will be up to the first case to lay out how existing law applies to new phenomena that may or may not be covered, depending on what a judge thinks of the arguments.
It is a federal crime, but one could be forgiven for assuming federal crimes committed by this administration will not be prosecuted while this administration is in power.
I don't think he's saying people who do that right now will be prosecuted. I think he's just saying that it will become illegal so anyone doing it then runs the risk of being prosecuted.

> The only way that this could be a federal crime right now is if the government starts prosecuting it under existing laws without any changes. I don't see that as likely.

Fully agree, especially since Kalshi just caught one of the editors of MrBeast's videos red handed (he was betting on the "What words will MrBeast say in his next video" market with 100% accuracy) and while Kalshi banned the guy the DOJ has shown 0 interest in doing anything with that.

Schrodinger's felony
I understand he wants to deflect liability from his platform, but I guess I have to concede that it seems like a legitimate defense. We allow the stock market to exist even though insider trading can happen and it's (I think?) not Nasdaq's or NYSE's responsibility to pursue that. We have a legal system for that.

I think there is still the debate to be had whether prediction market enable too much criminal activity and insider trading compared to traditional stock markets and therefore need to be limited for pragmatic reasons (i.e. the legal system can't keep up), but that's a different discussion.

The Kalshi CEO should put their considerable wealth into bets on Kalshi that this will happen. I'll wait.

We have a situation where selective prosecution is used to command loyalty while the ringleader has been immunized from any kind of legal consequences by the Supreme Court, 6 of whom were appointed by said ringleader. Pardons are pretty openly sold now. It's cheaper to rip off the government then pay a fraction for a pardon, erasing any fine or repayment.

I bet there are lower level staffers who are profiting off inside information on prediction markets. Maybe some will be made an example of. I won't hold my breath.

But all the big insider trading is occurring in securities markets, particularly with oil futures and SPY futures. It's reached the point where no professionals trust the futre oil prices at all and and the physical oil prices differ from the future price by as much as $60/barrel. We've had $1b+ bets on SPY futures minutes before market-changing news. We don't know for sure who's doing this but my guess is that it's at the highest levels of the administration.

This DoJ is actively working to protect actual sex traffickers from accountability. What makes this doofus think they will ever investigate their own friends for insider trading?
Ok, but isn't the idea that prediction markets surface private knowledge a big part of the defense as to why they shouldn't be treated as illegal gambling?

So like, which is it, is insider trading expected, or are these just gambling sites that should be illegal in many jurisdictions?

> isn't the idea that prediction markets surface private knowledge a big part of the defense as to why they shouldn't be treated as illegal gambling

No. Their defense is that they are a gamified platform for futures contracts and hence should fall under CFTC regulation.

The CFTC also cracks down on insider trading, but it took time for them to write regulations to catch up with prediction markets.

It is now a priority [0] and they have just started a paid whistleblower [1] programs specifically to catch insider traders within prediction markets.

[0] - https://www.lw.com/en/insights/new-cftc-enforcement-director...

[1] - https://www.whistleblower.gov/whistleblower-alerts/Insider_T...

Yes. This argument doesn't even apprehend insider trading laws on regulated securities markets in the US, where the crime is about theft, not fairness.
If all one cares about is the accuracy of predictions (i.e. setting aside value judgements vis-a-vis society or fairness), it does seem like "insider trading" should make prediction markets more accurate.
Agreed. So who are the outsider chumps taking the other ends of these bets? At this point, it doesn’t make sense to participate unless you’re an insider.
Prediction markets don’t need to surface private knowledge, they can surface sophisticated interpretations of public knowledge. They are certainly gambling if you’re an unsophisticated rube (which is most of the users).
Prediction Markets, unlike many gambling sites, create a marketplace for odds. There's no house taking positions like in certain casinos or on DraftKings. Market makers offer shares in Yes and No while bettors buy and sell these odds to each other or to market makers.
Donald Trump Jr. is a "strategic advisor" to Kalshi, and is on the advisory board of Polymarket. Fed chair nominee Kevin Warsh holds a stake in Polymarket. CFTC Chairman Michael Selig, a Trump appointee, has advocated for prediction markets, and wants to put the CEO of Polymarket on an advisory committee. David Urban, a lobbyist who worked for Trump, was hired by Polymarket.

If there are any prosecutions, it won't be anyone in or connected to the administration. Even if these groups weren't in bed together, the fact that the administration has obviously been engaging in insider trading, and the DoJ hasn't done anything about it, makes it clear nothing will happen to them in the future either. The door to the vault is open and they're casually walking out with the public's money falling out their pockets.

One could hope DOJ would prosecute illegal gambling and preying on vulnerable people but anyways..
“If you commit insider trading on Kalshi, that can and will at some point be a federal crime. It is a federal crime, I actually do expect the DOJ to prosecute some of these cases”. I'm guessing that “some point” is sometime after Jan 20th 2029.
You give the Dems too much credit.
Well... it is a felony.
for regulated things it is, if you get caught, and if anyone is looking or gives a shit
I'm guessing it's Trump insiders who are busy making bank on inside info. Some of them just happen to be big investors in Polymarket and Kalshi. There's no way they are getting investigated, let alone prosecuted, by this DOJ.

At most some low-level flunkie will get named and slapped on the wrist.

Can I bet on this?
Oh, come on. The DOJ doesn't prosecute _child rape_ if you're a protected class. And all these insider traders are a protected class.
Translation: "it's not our problem"
Zero chance. This country has become an absolute joke of corruption, especially anything related to insider trading.
I agree the country has rampant corruption, but I disagree that the US DOJ should be pursuing insider trading on these markets.

Why should my tax dollars be spent on helping a bookie run their gambling business? Insider trading laws and prosecution in the financial markets makes sense, because the fair and impartial enforcement helps all of our economy, and allows capital to do its job investing in productive ventures.

These prediction markets are not that. They aren’t sources of investment for a productive enterprise, it is pure gambling.

Why should the US government spend money making sure people can gamble? If people want their gambling to be fair, they can pay for their own enforcement.

I like the idea of insider trading running rampant on these platforms. Once people realize that the other side of their bet knows the outcomes in advance, maybe they will stop betting their money on these platforms and they can just die.