WASHINGTON — Federal lawmakers are intensifying oversight of online prediction markets following revelations that people were placing bets on sensitive military operations and foreign policy developments.
The controversy erupted when Massachusetts Democratic Representative Seth Moulton discovered users on Polymarket, a major prediction betting platform, were wagering on the timing of a U.S. military rescue mission for a downed airman in Iran. Screenshots showed 15% of bettors predicted an April 3 rescue, while 63% wagered on April 4.
Moulton, a former Marine with four Iraq deployments, condemned what he called a “dystopian death market” on social media. The platform subsequently halted the betting, stating it failed to meet their integrity standards.
“This is war profiteering and Congress needs to step in and stop it,” Moulton declared. He criticized Polymarket as “completely unwilling to self-regulate when it comes to betting on the lives of our service members.”
The incident has sparked bipartisan concern in Congress about prediction markets — online platforms where users bet on outcomes ranging from sports events to religious prophecies. These concerns center on potential insider trading using classified government information.
“It’s a national conversation about what it means to have market integrity,” explained Kristin Johnson, former commissioner at the Commodity Futures Trading Commission, which oversees these markets.
Washington’s response has been notably rapid compared to past regulatory delays with tobacco, opioids, and social media platforms. The markets face criticism for potentially corrupting sports integrity and fueling gambling addiction among young men.
Polymarket operates primarily offshore, beyond direct U.S. regulatory reach, while its main competitor Kalshi functions under domestic oversight. Donald Trump Jr. serves on Polymarket’s advisory board and as a paid Kalshi adviser, with his venture capital firm 1789 Capital investing in Polymarket.
Recent Associated Press reporting revealed suspicious activity on Polymarket, where new accounts made precisely timed bets on U.S.-Iran ceasefire negotiations on April 7, generating hundreds of thousands in profits. The White House issued warnings against staff using private information for market trading the same day the report published.
Earlier concerns arose when an anonymous user earned over $400,000 betting on Venezuelan President Nicolás Maduro’s removal, raising insider trading suspicions.
Indiana Republican Senator Todd Young, also a former Marine, expressed growing alarm. “I became especially concerned about market distortions, improper decision making, and undermining of public trust through self-enrichment after the news broke about Venezuela,” he stated.
Young partnered with Michigan Democrat Elissa Slotkin on legislation prohibiting federal employees from using confidential information for prediction market betting. Their bill represents one of several bipartisan congressional efforts targeting these platforms.
Potential presidential candidate Rahm Emanuel proposed broader restrictions, suggesting bans on all federal employee and family member participation. He also recommended a 10% fee on prediction markets and online gambling to fund scientific and health research.
California Governor Gavin Newsom, another possible Democratic presidential contender, issued executive orders preventing his appointees from using nonpublic information for market trading.
While no legislation has clear passage prospects currently, the scrutiny highlights different market approaches. Polymarket officials remained silent for comment, operating mainly offshore with limited U.S. functions restored only after Trump’s return to office.
Kalshi promotes its regulated status and supports additional oversight. “We support Congress and regulators taking action to police insider trading, keep prediction markets onshore and under federal regulation,” spokesperson Elisabeth Diana said. “Not all prediction markets are the same.”
White House spokesman Davis Ingle confirmed Trump’s position that “members of Congress and other government officials should be prohibited from using nonpublic information for financial benefit.”
The Commodity Futures Trading Commission, responsible for overseeing prediction markets, faces capacity questions. Dennis Kelleher, president of Better Markets advocacy group, questioned whether the agency has “experience, expertise, budget, technology to actually in any way supervise, regulate or police gambling on everything from whether it’s Iran, Venezuela, whether it’s reality TV, whether Christ is going to come back before the end of the year.”
The commission currently operates with only one member, Michael Selig, a former CFTC attorney who represented cryptocurrency clients before Trump’s appointment. This staffing concerns congressional Democrats, with Illinois Senator Richard Durbin noting the Chicago office’s enforcement attorneys dropped from 20 to zero.
During Thursday’s House Agriculture Committee hearing, Selig defended agency operations, stating they were hiring staff and improving efficiency. He refused to delay new regulations pending board appointments but emphasized insider trading concerns.
“Nothing is more important than protecting market integrity,” Selig testified.
However, CFTC enforcement only extends to domestically regulated markets, primarily affecting Kalshi. Polymarket recently launched a U.S.-compliant platform with a waiting list, representing a small fraction of its offshore operations.
At a Vanderbilt University discussion, Selig blamed the previous Biden administration for creating regulatory conditions that discouraged domestic market operations.
Multiple states have attempted restricting prediction markets as unlicensed gambling, but the CFTC has asserted exclusive regulatory authority, filing lawsuits against Connecticut, Arizona, and Illinois this month.
This creates an unusual Washington situation with broad legislative agreement on addressing prediction market issues, but varying opinions on solution scope.
Young acknowledged his proposal as preliminary, noting lawmakers need greater prediction market understanding. “But I think we can all agree at this early stage, as usage of these platforms grows and real money is put at stake, that this is a measure that should be taken immediately,” he concluded.
