Prediction market company Kalshi will start requesting information from employers in instances where high-risk markets are in play as it strengthens its efforts to stop insider trading and manipulation on the platform.
The sector is facing increased scrutiny over insider trading risks following several high-profile cases involving trades allegedly based on nonpublic information. In response, platforms including Kalshi have introduced new compliance measures aimed at identifying potential insiders and limiting their ability to trade in higher-risk markets.
Markets to be assigned score by Kalshi
Kalshi has said it will rate new markets for insider-trading and manipulation risks, requiring employment disclosures from traders in higher-risk markets. The review is expected to consider whether certain individuals or groups may have privileged access to information that could affect a market’s outcome. Users identified as potential insiders will be barred from trading in those markets.
Higher-risk prediction markets typically involve events where a limited group of people may have access to nonpublic information, such as government decisions, legal proceedings or corporate actions. Such markets are considered more vulnerable to insider trading because participants with privileged knowledge could gain an advantage over other traders.
Robert DeNault, head of enforcement at Kalshi, said in a statement: “By implementing these new integrity measures, we continue to lead the industry on the issue of market integrity among federally regulated prediction markets,
Kalshi added: “This lets us identify presumptive insiders, people who have material, nonpublic information about a market’s outcome, and screen them out before a trade is ever placed.”
The US public has a strained relationship with excessive intervention by big companies, but Kalshi argues employment information will only be used if suspicious activity registers on its rating scale. So far, these tools have stopped more than 100 potential insider trading instances, the company said.
The changes are expected to be rolled out in the coming weeks.
George Santos investigation latest example of potential insider trading
Last week, prediction market platform Polymarket ended its paid relationship with the former U.S. Rep. George Santos as federal regulators investigate whether he improperly profited from bets tied to his attendance at President Donald Trump’s State of the Union address.
According to people familiar with the matter, Santos placed trades on rival platform Kalshi after publicly stating he would attend the speech. He later missed the event, citing a delayed flight.
The trades were flagged by Kalshi and referred to the Commodity Futures Trading Commission (CFTC), which has opened an investigation into potential insider trading. Santos has denied wrongdoing, calling the allegations “preposterous.”
Regulators have said they take such allegations seriously as platforms face growing scrutiny over market integrity and the use of nonpublic information.
Director of Enforcement at the CFTC, David I. Miller, gave remarks at New York University in March explaining how agencies are contending with a relatively new phenomenon: “Unfortunately, a myth has spread that insider trading is permissible, even encouraged, in the prediction markets. Prominent individuals in finance, the media, and on social media have contended that insider trading law does not apply in these markets.
“Some have suggested that insider trading is inevitable or beneficial because it gives people with confidential information a financial incentive to trade on it, thus releasing the information to the public. These comments all suggest that insider trading is an important and acceptable part of the prediction markets ecosystem.
“Not so. Insider trading in the commodity futures and swap markets is prohibited by the Council of Economic Advisers (CEA) and relevant CFTC regulations. And this is not some abstract theory; the prohibition on insider trading in commodity markets involves a straightforward application of the law.”
December trial date set for insider trading case on Polymarket
Meanwhile. a federal judge has tentatively scheduled a Dec. 7 trial for the U.S. Army Master Sgt. Gannon Ken Van Dyke, who is accused of using classified military information to profit from trades on prediction market platform Polymarket. Van Dyke has pleaded not guilty to charges including commodities fraud and wire fraud.
Prosecutors allege Van Dyke placed 13 bets tied to the operation that resulted in the capture of Venezuelan leader Nicolás Maduro, generating more than $400,000 in profit from an initial investment of about $33,000. Authorities say he later attempted to conceal the activity by seeking to delete his account.
The case is believed to be the first U.S. criminal prosecution involving alleged insider trading on a prediction market, as regulators and lawmakers intensify scrutiny of the rapidly growing industry. The CFTC has also filed a parallel civil action.
Defense attorneys have indicated they plan to seek dismissal of the indictment, arguing that classified information central to the case could complicate the government’s prosecution. House lawmakers have separately requested records related to the Venezuela-linked wagers as part of an ongoing inquiry.
