Democratic lawmakers are trying to stop the potential manipulation of prediction markets by government officials who bet on events they know will happen, such as U.S. military actions, according to a new bill introduced Tuesday.
The Prohibiting Event Trading on Sensitive Operations and Federal Functions (BETS OFF) Act would prohibit corrupt betting by those who already know the outcome of issues such as government action, terrorism, war, assassinations and other events of which the bettor has inside knowledge. He is supported by Sen. Chris Murphy, a Connecticut Democrat on the Senate Foreign Relations Committee who has been a prominent critic of President Donald Trump’s administration, and Rep. Greg Casar, a member of the House Committee on Oversight and Government Reform.
The lawmakers said they were responding to reports that prediction market accounts placed large bets ahead of U.S. operations in Venezuela and Iran. Although Democrats’ legislation is unlikely to be a priority for a Congress that is still majority controlled in both chambers by Republicans, the midterm elections are seen as likely to return the House to a Democratic majority — and perhaps the Senate, according to those same prediction markets that lawmakers are focusing on. If Democrats control congressional committees, their preferred legislation has a better chance of being heard.
According to the text of the bill, any type of betting that could give rise to insider trading would be prohibited. This goes beyond government-related actions, says a page shared with the text of the bill. Events such as surprise Super Bowl halftime singers or awards program winners would also be banned “because insiders know the outcome in advance.”
The text of the bill itself defines “specified events” to include “any event…the outcome of which is within the complete control of any person; or the outcome of which is known to any person in advance.”
Market manipulation and fraudulent betting fall under the purview of the platforms’ regulator, the US Commodity Futures Trading Commission. Trump appointee Mike Selig is a fan of prediction markets and says they can represent an antidote to flawed political polling and media reporting.
They also have a potential insider trading problem, as evidenced by some recent internal disciplinary actions taken by one of the major companies, Kalshi. It suspended and fined two of its users, including a political candidate who bet on his own candidacy for governor of California whose outcome he knew.
In January, Rep. Ritchie Torres, a New York Democrat who is a longtime ally of the crypto industry, introduced a bill with dozens of fellow lawmakers that also sought to crack down on insider trading after suspicious bets on stocks in Venezuela. And last week, Sen. Adam Schiff of California introduced a bill to ban predictive market contracts tied to war, terrorism, assassinations or death, while fellow Democratic Sen. Richard Blumenthal introduced his own bill to target insider trading and market manipulation.
Murphy’s bill would similarly prevent the CFTC from listing contracts affecting these areas.
