Prediction markets are coming under intense scrutiny after both Kalshi and Polymarket accepted bets on the Khomeini Out market.
More than $500 million was traded on the timing of the outcome, which has triggered lawmakers to demand an investigation into the practice.
Chris Murphy to introduce legislation
Scrutiny over prediction markets intensified after blockchain analytics firm Bubblemaps posted on X that “six suspected insiders made $1.2M betting on a U.S. strike on Iran,” flagging accounts that wagered “yes” just hours before the attack and collectively profited about $1.2 million.
Analysts say the wallets were newly created and funded within a day of the strike, raising concerns they may have traded on nonpublic information, a pattern critics liken to insider trading.
Senator Chris Murphy called it “insane” in a social media post on Saturday, adding he would be drafting a law as soon as possible to limit the practice.
California Congressman Mike Levin, a Democrat, also added on X: “Prediction markets cannot be a vehicle for profiting off advance knowledge of military action. We need answers, transparency, and oversight.”
In a statement, CEO of Kalshi Tarek Mansour explained the rationale behind the market and why the company stands behind their decision to allow it to be traded:
“A market on Ali Khamenei out as Supreme Leader was important because leadership changes in Iran have a major impact on the world order. Geopolitical implications, economic consequences, national security considerations, and oil and commodity prices, many of which move based on news and expectations around this outcome.”
Awkward moment for prediction markets or vindication?
The increased spotlight comes at a difficult time for the sector, which has been under increasing pressure by state governments, with many elected officials arguing it should be regulated like a betting site.
The industry’s legal fights are no longer hypothetical. In Massachusetts, a Suffolk County Superior Court judge this year granted a preliminary injunction blocking Kalshi from offering certain sports-related event contracts to residents without a state gaming license, siding with regulators who argued the products resemble unlicensed wagering.
In Nevada, state gaming authorities have moved to bar both Kalshi and Polymarket from operating without approval, securing court orders to restrict access while litigation proceeds. Maryland regulators have likewise challenged Kalshi’s assertion that federal commodities law preempts state gambling rules, setting up a broader clash over jurisdiction.
And in New York, Kalshi faces a proposed class action in state court accusing it of facilitating illegal gambling through event contracts tied to sports and other outcomes.
For years, platforms such as Kalshi and Polymarket have promoted themselves as information markets, places where traders buy and sell contracts tied to future events, from election outcomes to economic data releases. Prices on those contracts, they say, reflect the collective judgment of participants and can offer a real-time gauge of public expectations.
Tribal gambling body to tackle prediction markets nationwide
The Indian Gaming Association announced a coordinated national campaign to challenge prediction markets, arguing they operate outside tribal, state and federal gaming law. Speaking at the Western Indian Gaming Conference in California, Chairman David Z. Bean called the platforms “illegal, unregulated online sports betting” enabled by federal regulators.
Bean said tribes are preparing “legal, legislative, and regulatory action,” accusing the Commodity Futures Trading Commission (CFTC) of allowing “an unlawful end-run around tribal governments, state regulators, and Congress itself.” He added, “This is not innovation. This is illegal gambling.”
Conference sessions warned that prediction markets recast sports wagering as financial trading to bypass tribal compacts and consumer protections. “The CFTC is being used as a vehicle to authorize nationwide gambling without tribal consent,” said Victor Rocha, calling it “federal overreach at its most dangerous.”
Tribal leaders said gaming generated $43.9 billion in revenue through 2024, funding essential services, and vowed unified opposition. “The alarm has been sounded across Indian Country,” said Jason Giles. “Tribal nations are unified, mobilized, and prepared to defend our sovereignty.”
New coalition adds to list of prediction market fights
A new coalition, Gambling Is Not Investing, launched Monday to press for enforcement of state and tribal gaming laws, arguing prediction markets enable illegal sports betting. The group contends federally regulated platforms are operating where sports wagering is banned and are sidestepping consumer protections.
Led by former Rep. Mick Mulvaney, the coalition says labels such as “trading” or “investing” disguise gambling products. “Gambling products, regardless of what you call them, must follow established state and tribal laws,” Mulvaney said, adding that rebranding wagering “misleads consumers” and undermines safeguards.
The dispute has split Republicans, with CFTC Chair Mike Selig warning, “We will see you in court,” if states challenge federal authority. Utah Gov. Spencer Cox fired back, calling the platforms “gambling, pure and simple” that “have no place in Utah,” and vowed to “beat you in court.”
