Democratic lawmakers are trying to put a stop to potential manipulation of prediction markets by government officials who bet on events they know are happening, such as U.S. military actions, according to a new bill being introduced Tuesday.
The Banning Event Trading on Sensitive Operations and Federal Functions (BETS OFF) Act would outlaw corrupt wagers from those who already know the outcome of matters including government action, terrorism, war, assassination and other events the bettor has inside knowledge of. It’s backed by Senator Chris Murphy, a Connecticut Democrat on the Senate Foreign Relations Committee who has been a prominent critic of the administration of President Donald Trump, and Representative Greg Casar, a member of the House Committee on Oversight and Government Reform.
The lawmakers said they’re responding to reports that prediction market accounts had placed significant bets before the U.S. operations in Venezuela and Iran. While legislation from Democrats won’t likely be a priority for a Congress that’s still majority-controlled in both chambers by Republicans, the midterm elections are considered likely to swing the House back to a Democratic majority — and possibly the Senate, according to those same prediction markets the lawmakers are focused on. If Democrats control the gavels of congressional committees, their preferred legislation has a better chance at a hearing.
According to the text of the bill, any kind of bet that has the potential for insider trading would be barred. This extends beyond government-related actions, a one-pager shared alongside the bill text said. Events like surprise singers at the Super Bowl halftime show or winners of awards programming would also be barred “because insiders know the outcome in advance.”
The text of the bill itself defines “specified events” as including “any event … the outcome of which is under the complete control of any person; or the outcome of which is known by any person in advance.”
Market manipulation and fraudulent betting is a matter in the hands of the platforms’ regulator, the U.S. Commodity Futures Trading Commission. Trump’s appointed chairman, Mike Selig, is a fan of prediction markets who has argued they can represent an antidote to faulty political polling and media reporting.
They also have a potential insider-trading problem, as seen in a couple of internal disciplinary actions recently taken by one of the leading firms, Kalshi. It suspended and fined two of its users, including a political candidate who had placed a bet on his own candidacy for California governor that he knew the outcome of.
In January, Representative Ritchie Torres, a New York Democrat who’s been a longtime ally of the crypto sector, introduced a bill with dozens of fellow lawmakers on board that was similarly meant to crack down on insider trading after suspicious bets on the actions in Venezuela. And just last week, Senator Adam Schiff of California introduced a bill to ban prediction market contracts tied to war, terror, assassinations or death outright, while fellow Democratic Senator Richard Blumenthal introduced a bill of his own to target insider trading and market manipulation.
Murphy’s bill would similarly block the CFTC from listing contracts touching these areas outright.
