House Oversight Committee Releases Memorandum on Insider Trading Risks in Prediction Markets

WASHINGTON­—The House Committee on Oversight and Government Reform released a staff memorandum on its investigation into insider trading activity among government officials, military personnel, and individuals with security clearances who have been making trades on prediction market platforms using non-public information for personal profit. As part of the Committee’s investigation, it obtained nearly 1,700 pages of documents and communications and received five bipartisan staff briefings from prediction market platforms on their efforts to detect and report suspicious activity linked to insider trading. 

“Americans are rightly concerned about public corruption. Congress has a duty to ensure our laws adequately prevent insider trading, hold bad actors accountable, and prohibit government officials and employees from profiting from nonpublic information. We launched an investigation into insider trading on prediction market platforms and are encouraged by their efforts to prevent, detect, and report illegal activity. Congress must consider additional reforms to prevent public corruption and restore the American people’s trust in government,” said Chairman James Comer (R-Ky.).

Below are key findings and recommendations from the memorandum:

• It is paramount that individuals with security clearances or access to non-public government information are prohibited from exploiting prediction markets for personal gain: Prediction markets have discovered suspicious trading activity on their platforms indicative of insider trading. Political candidates and those close to major policy decisions have also engaged in potential insider trading on prediction market platforms. 
• Insider trading laws apply to contracts on prediction markets: Current federal insider trading laws and regulations apply to prediction markets just as they would securities and derivatives. In 2010, Congress amended the Commodity Exchange Act (CEA) to prohibit fraud and manipulation in derivatives markets. Section 4c(a)(3) of the CEA, as amended by the Stop Trading on Congressional Knowledge (STOCK) Act, prohibits federal agency employees, Members of Congress, congressional employees, and judicial officers and employees from using nonpublic information derived from their positions to trade commodity futures, options, or swaps. Section 4c(a)(4) of the statute also prohibits a covered individual from providing insider information to non-covered third parties who assist or enter into such trades.
• Prediction markets play a key role in detecting and preventing suspicious trades and ensuring market integrity: Four of the five platforms provided substantial documentation and/or briefed the Committee on internal control structures and sophisticated proprietary technologies designed to detect and prevent insider trading through suspicious trade patterns. Most of the reported incidents of insider trading within prediction markets were initially detected and reported to regulators and law enforcement by the markets themselves. 
• Prediction market platforms Polymarket and Kalshi have continually made robust improvements to their insider trading surveillance detection protocols: Polymarket recently hired a former law enforcement expert to oversee a team of employees to manage insider trading prevention detection efforts and implemented a sophisticated surveillance software protocol known as “PolyGraph,” in partnership with the analytics company Chainalysis. 

• Further statutory restrictions on federal government personnel are necessary: Whether it is an outright prohibition on trading on prediction markets or restrictions on some subset of contracts like government-related contracts, applying these restrictions to officials in all branches of government would strengthen ethical expectations that government personnel should not personally and financially benefit from access to non-public information associated with their work as government servants, and would eliminate even the appearance that government personnel are exploiting non-public information received in an official capacity for financial gain. 

• Congress should consider further reforms to prevent public corruption and restore public trust: Congress should consider legislation that further restricts the types of event contract markets that federal government personnel, Members of Congress, and congressional staff can participate in, regardless of whether they are trading on insider information. The Committee also recommends that Congress encourage prediction market platforms and regulatory agencies to share information necessary to enforce restrictions on insider trading, enabling the markets to continue to detect and prevent it.

Read the staff memorandum here.