Democratic lawmakers are trying to put an end to potential manipulation of prediction markets by government officials who bet on events they know will happen, such as U.S. military action, under a new bill to be introduced Tuesday.
The Act to Prohibit Trading in Events on Sensitive Operations and Federal Functions (BETS OFF) will prohibit corrupt betting by those who already know the outcome of cases, including government action, terrorism, war, assassination and other events known to the player. It is backed 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 predictive market accounts had placed significant bets ahead of the U.S. operations in Venezuela and Iran. While legislation from Democrats is unlikely to be a priority for a Congress still majority-controlled in both chambers by Republicans, the midterm elections are seen as being able to swing the House back to a Democratic majority — and possibly the Senate, according to the same predictions lawmakers are focused on. If Democrats control the reins of congressional committees, their preferred legislation has a better chance of a hearing.
According to the text of the law, any type of betting that has the potential for insider trading will be excluded. This extends beyond government-related actions, said a one-pager shared along with the text of the law. Events such as surprise singers at the Super Bowl halftime show or awards show winners would also be excluded “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 within the complete control of any person; or the outcome of which is known to any person in advance.”
Market manipulation and fraudulent betting is a matter in the hands of the platform’s regulator, the US Commodity Futures Trading Commission. Trump’s chairman appointee, Mike Selig, is a fan of prediction markets who have argued that they can represent an antidote to flawed 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 run for California governor, the outcome of which he knew.
In January, Representative Ritchie Torres, a New York Democrat who has been a longtime ally of the crypto sector, introduced a bill with dozens of lawmakers on board that was similarly intended to crack down on insider trading after suspicious bets on the actions of Venezuela. And just last week, Senator Adam Schiff of California introduced a bill to ban predictable market contracts tied to war, terror, assassinations or death, while Democratic Senator Richard Blumenthal introduced his own bill to target insider trading and market manipulation.
Murphy’s bill would similarly block the CFTC from directly listing contracts that affect these areas.
