Here's an uncomfortable truth: the Commodity Futures Trading Commission doesn't actually enforce insider trading rules on prediction markets. It says it does. The CFTC chair has vowed that anyone attempting fraud will "be found... and take action." But when Kalshi, the largest federally regulated prediction market, uncovered two insider trading cases and reported them to the agency, nothing happened. The exchange handled the enforcement itself.
The pattern is becoming clearer with each suspicious trade. A YouTube channel editor traded contracts based on advance knowledge of upcoming videos and was hit with a $20,397.58 financial penalty and suspended for two years. A political candidate openly bet on his own candidacy and faced similar penalties. Both cases were resolved by Kalshi's internal compliance team, not federal regulators.
This is not self-policing by a well-intentioned exchange. It's regulatory theatre. The CFTC's Division of Enforcement filed just 11 enforcement actions in 2025 compared to 58 in the 2024 fiscal year. Meanwhile, prediction market trading exceeded $60 billion in 2025, a 400 per cent increase from 2024. The gap between the size of the market and the agency's enforcement capacity is not a bug; it's now the defining feature of the system.
The insider trading cases on these platforms are becoming almost routine. An anonymous Polymarket user bet over $32,000 on the capture of Venezuelan president Nicolas Maduro just before it happened, turning the wager into a $400,000 profit. Another user in December 2025 made nearly $1 million through accurate bets on Google's Year in Search rankings. These are not statistical anomalies. They are evidence of a market where people with access to nonpublic information can profit with near-certainty.
The counterargument from the Trump administration and its CFTC leadership is seductive. These platforms, they say, facilitate price discovery and information aggregation, fundamental economic goods. CFTC chairman Michael Selig has embraced prediction markets' role in these functions, describing them as deeply rooted in commodity futures trading history. The exchanges themselves maintain robust compliance programmes. On the surface, the system has safeguards.
But look closely at what Selig and others are actually saying. The CFTC asserts it has "full authority" to police misconduct. Selig notes that exchanges are "the regulator's first line of defence." That phrasing matters. It implies a second line of defence. There isn't one. Despite their growing popularity and several high-profile instances of suspected insider trading, the CFTC and criminal authorities have yet to bring a case alleging fraud or manipulation in these markets.
Congress is beginning to notice. House and Senate ethics committees give no financial disclosure guidance on event contracts or prediction markets, unlike stock, cryptocurrency and bond trades, and there is no public guidance on how to report gains from these financial vehicles. Senator Jeff Merkley has introduced legislation that would ban members of Congress, the president and vice president from buying or selling any prediction market bets. Senator Chris Murphy introduced the "BETS OFF Act," which would prohibit wagers on terrorism, assassination and war, and also ban trades on non-financial government actions and events where the outcome is known in advance.
The problem is not that prediction markets exist or that trading on them should be illegal. The problem is that the regulatory infrastructure treating them as legitimate financial instruments has no teeth. The CFTC can claim authority while allocating minimal enforcement resources. Exchanges can claim compliance while handling serious violations internally. Lawmakers can express shock at well-timed trades while doing nothing to prevent them.
Federal prosecutors are now signalling they will get involved. The United States Attorney for the Southern District of New York stated that prediction markets are "an area that I am looking at" and that enforcement actions are expected. If criminal prosecution arrives before the CFTC's civil enforcement does, it will reveal an embarrassing truth: a federal financial regulator lost control of its own domain to the criminal justice system.
Reasonable people disagree on whether prediction markets should exist at all. Some see them as valuable information aggregators; others see them as corrupt gambling dressed in financial language. But there is no legitimate disagreement on this: if a market is regulated as a financial instrument, it must be enforced as one. Right now, it is neither.