Kalshi prediction site suspends three political candidates for betting on their own races

By Marshall Cohen, CNN

Washington (CNN) — The prediction market Kalshi suspended three political candidates from its platform on Wednesday for “political insider trading” after an internal probe found that they bet on their own campaigns.

These suspensions and fines, reported first by CNN, are the most aggressive enforcement actions taken to date by a prediction site against political candidates, with primaries for the 2026 midterms already underway.

The announcement comes as lawmakers from both parties have steadily raised concerns about how the rapidly expanding prediction market industry could potentially undermine the integrity of US elections.

On prediction sites, users can bet on nearly everything from elections to sports, entertainment, or even the daily high temperature. (CNN has a partnership with Kalshi and uses its data to cover major events. However, editorial employees are not allowed to participate in prediction markets.)

Robert DeNault, Kalshi’s head of enforcement, said in a statement announcing the suspensions that these cases are “political insider trading” and violated Kalshi’s rules as approved by the Commodity Futures Trading Commission, the federal agency that regulates prediction platforms.

The statement didn’t identify the three users facing punishments. A source familiar with the matter said they were candidates for federal offices.

“When a trader violates our exchange rules, they will be subject to exchange discipline,” DeNault said. “For more serious matters, we refer cases to the CFTC or DOJ for further investigation and prosecution, which didn’t happen here.”

It wasn’t immediately clear how much money these candidates wagered on their own campaigns, though DeNault suggested they might be small trades.

“Regardless of the size of a trade, political candidates who can influence a market based on whether they stay in or out of a race violate our rules,” DeNault said. “No matter how small the size of the trade, any trade that is found to have violated our exchange rules will be punished.”

The Biden-era CFTC tried to prohibit election-related prediction markets, but two federal courts later cleared the way before the 2024 presidential election. The Trump-appointed CFTC chair, Michael Selig, has embraced these markets and withdrew the agency’s proposed ban earlier this year.

This is Kalshi’s second round of major enforcement actions this year. In February, it suspended an employee of YouTube star MrBeast and a little-known candidate for California governor who bet $200 on his own race.

A source familiar with the matter says Kalshi, as it did in prior cases, is expected to donate the fines from Wednesday’s enforcement actions to a nonprofit organization that educates consumers about financial markets.

Legal gray area

Over the past year, Kalshi and its main rival, Polymarket, have exploded in popularity. Both sides now see billions of dollars in weekly total volume.

A bipartisan array of lawmakers have expressed alarm about the risks of insider trading. These criticisms grew after reports from CNN and other outlets about well-timed and highly lucrative trades on Polymarket regarding the US-Israeli war in Iran and US military actions in Venezuela.

But not all insider activity on prediction markets is automatically illegal.

Federal laws focus on whether the trader has an existing legal obligation to keep information secret. This leaves a gray area with political campaigns, according to Noah Solowiejczyk, a former federal prosecutor in the Southern District of New York who often partnered with the CFTC on financial cases.

“If it was a campaign employee who has a duty to keep campaign information confidential, that might be different scenario, violating existing law,” Solowiejczyk said. “But the candidate themselves, trading on their own information, isn’t breaching a duty to anyone. It’s their own campaign.”

Lawmakers have proposed at least two bills this year to stop CFTC regulated companies like Kalshi from offering election contracts in the first place.

Rep. Blake Moore, a Utah Republican, said in a statement last month announcing his bipartisan bill that “under-regulated prediction markets have exposed America to needless public safety and national security risks” by letting users trade on “sensitive matters,” including elections.

Prediction sites are federally regulated by the CFTC. But about 40 states have argued in court that prediction platforms offer products that are nearly identical to gambling and therefore must comply with state gaming laws.

One state, Arizona, filed criminal charges against Kalshi for allegedly operating an unlicensed casino and violating state bans against election bets. Kalshi denies wrongdoing, and a federal judge recently halted the state case.

The-CNN-Wire
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