Oversight agencies may find it difficult to monitor wagering on upcoming midterm elections, as thousands of contests create numerous opportunities for those with inside knowledge to profit illegally on expanding betting platforms, according to specialists and recent information.
A spike in questionable trading activity on the nation’s two biggest prediction market platforms has raised concerns that these rapidly expanding markets are opening fresh channels for insider trading violations.
One major platform suspended three congressional hopefuls in April after they placed wagers on their own electoral contests, while authorities are examining whether former congressman George Santos potentially engaged in insider trading on the same platform.
Specialists in insider trading violations believe this could represent just the beginning of a larger problem. With no fewer than 6,590 state and federal legislative positions being contested this year, an anticipated wagering surge will challenge protective measures in an emerging market where insider trading laws remain unclear and regulatory oversight is limited, according to industry observers.
“We may see a slow response or we may see no response if and when insider trading happens in the midterms,” said Ilya Beylin, a professor at Seton Hall Law School who has studied prediction market oversight. He noted that questionable trades could damage Americans’ confidence in democratic processes when polling already indicates many citizens believe the system faces threats.
Both major platforms and the Commodity Futures Trading Commission, which seeks oversight authority over prediction markets, maintain they possess adequate monitoring capabilities and resources to address these challenges.
The companies are strengthening their safeguards, with one platform prohibiting political figures and campaign staff from election wagering while another increases enforcement against trading based on private information. The Senate implemented a ban on prediction market betting by members and staff in April.
Monthly worldwide trading activity on the two leading platforms jumped nearly five times from September to approximately $24 billion in April, exceeding the roughly $14 billion wagered monthly through legal sports betting operations in the United States last year, based on research center data.
“As innovation expands the reach and complexity of our markets, we are continuing to grow alongside it, both operationally and technologically,” a CFTC spokesperson said, adding the agency will “enforce the law aggressively.”
Legal representation for Santos chose not to provide comment.
These markets enable participants to purchase and sell contracts based on whether specific events will occur, offering “yes” or “no” positions on various outcomes.
Participants can wager on congressional control by political parties, state legislature composition, individual contests, and related campaign events and candidate activities.
Beyond approximately 470 congressional races, 6,122 state and territorial legislative positions face election this year, according to the National Conference of State Legislatures, plus local contests for prosecutor, mayor, judicial, and other positions. Every candidate creates potential insiders including campaign workers, polling specialists, fundraising staff, financial contributors, personal contacts and relatives.
Although insider trading faces prohibition in commodity derivatives markets, legal specialists note relatively few enforcement cases have occurred. Election-related insider information spans a wide range, from unreleased polling results to developing controversies, much of which regulators may not fully understand, according to Beylin.
“They will need to learn, and that learning process often involves trial and error,” he noted.
The scope of potential inside information continues expanding as election wagering becomes increasingly specialized. During the major election year of 2024, one platform featured 1,293 election-related markets with $7.26 billion in trading activity, according to the Anti-Corruption Data Collective, a nonprofit research organization.
With fewer significant contests last year, election markets on the platform decreased, but the ratio of markets to races increased seven-fold to 17.4, showing election wagering is becoming more detailed, according to Michelle Kendler-Kretsch, a researcher with the organization.
These markets increasingly emphasize race variables rather than simple winners and losers, including voter participation, victory margins, and candidate withdrawal timing, based on the group’s analysis, which has not been previously published.
For instance, one platform last year offered multiple markets on “inactive” ballot percentages, meaning votes for eliminated candidates, in the Democratic primary for New York City mayor.
This development “creates a more significant information asymmetry, while the number of potential insiders grows and the risk of insider trading increases,” Kendler-Kretsch explained.
Beyond the two major platforms, at least four other authorized U.S. platforms offer election contracts, several brokers provide access to these products, and additional companies plan to launch services. Like traditional markets, these companies provide initial oversight.
One platform recently established U.S. operations, though its primary exchange lacks U.S. regulation and typically hasn’t required identity verification checks. While it prohibits U.S. residents, authorities have noted concerns that these restrictions can be easily circumvented.
“We maintain a comprehensive market integrity framework” and focus on transparency, a company spokesperson stated.
Through internal monitoring, the platform has reported nearly 100 user accounts to law enforcement, including one allegedly used by a U.S. soldier for insider wagering on Venezuelan leader Nicolas Maduro’s potential removal, the spokesperson said.
One platform defines insiders as individuals positioned to directly affect a contract’s outcome, said Robert DeNault, the company’s enforcement director. Besides identity checks, the company uses public records to identify federal politicians and campaign staff before trading and plans similar verification for local elections where information is available. It also monitors trading for unusual patterns.
The company can then focus on suspicious activity subsets, DeNault explained. “You can leverage the tools … to gather a lot of information,” he said, adding that while workloads can be substantial, they remain manageable.
Despite these tools’ capabilities, each lead requires human investigation, said Aitan Goelman, who served as CFTC enforcement director from 2014 to 2017. The cases one platform identified in April demonstrated the need for human verification of user identities.
With CFTC enforcement staffing at 105 positions, representing its lowest level in at least two decades according to budget information, and many experienced investigators having departed, the agency may lack sufficient personnel to examine numerous referrals, Goelman suggested.
The agency spokesperson said it relies on experienced staff and has maintained continuous hiring since December.
However, Goelman argued the agency’s resources were “not even close” to meeting its requirements.
