CFTC warns of insider trading and fraud in prediction markets

The Commodity Futures Trading Commission is telling prediction-market traders that insider trading rules apply, and it is already citing two KalshiEX cases as proof. In a February 25 advisory, the CFTC’s Division of Enforcement said it had authority to police illegal trading practices on any designated contract market after cases involving misuse of nonpublic information and fraud in event contracts.

One case centered on a trader who appeared to bet on his own candidacy in a political contract. Kalshi imposed a five-year suspension and $2,246.36 in penalties and disgorgement. In another, a Kalshi case involved a YouTube channel editor who allegedly traded while holding material nonpublic information about videos before they were posted. The message from Washington was blunt: prediction markets are not outside the reach of market-abuse rules.

The agency widened that warning in March. On March 12, the CFTC’s Division of Market Oversight said prediction markets were rapidly growing in popularity and were becoming a source of information for news media, sports leagues, financial institutions and everyday Americans. Four days later, the commission issued an advance notice of proposed rulemaking seeking public comment on event contract derivatives traded on markets commonly called prediction markets, including which contracts may be prohibited as contrary to the public interest. Comments were due April 30.

The enforcement side sharpened the point on March 31, when David I. Miller, the new enforcement director, laid out five priorities: insider trading, market manipulation, market abuse and disruptive trading, retail fraud, and willful anti-money-laundering and know-your-customer violations. Miller said insider trading covers prediction markets, rejecting the argument that the products sit outside traditional securities-style enforcement. He framed event contracts as swaps, not gaming contracts, which puts them squarely within the CFTC’s jurisdiction.

That regulatory push is unfolding as prediction markets draw more attention for their speed and opacity. Trades placed ahead of Donald Trump’s policy surprises have raised questions about whether some traders may have captured millions in profits. At the same time, the CFTC has been pressing its own jurisdictional claims, filing multiple prediction-market cases in April and May and defending exclusive oversight over the products.

The agency’s AI work shows how the response is evolving. It asked for comment on artificial intelligence in January 2024, then issued a staff advisory in December 2024 reminding registered entities that AI use must comply with existing Commodity Exchange Act and CFTC rules. Kristin N. Johnson said those obligations are technology neutral. In that sense, the CFTC is not just policing prediction markets; it is trying to use AI as a surveillance multiplier before faster, more opaque trading forces a scandal into the open.