Prediction markets have recently attracted significant attention after reports surfaced that some bettors earned large profits following major geopolitical developments. Events such as the removal of Venezuela’s former president Nicolás Maduro and U.S. military action involving Iran pushed these platforms into the spotlight. The possibility that people might be profiting from inside knowledge of such events has sparked concern in Washington, where lawmakers are now exploring ways to prevent elected officials from benefiting from these markets.
In response to these concerns, Senators Jeff Merkley of Oregon and Amy Klobuchar of Minnesota have introduced a new bill aimed at restricting government officials from trading in “event contracts.” These contracts allow users to place wagers on the outcomes of real-world events, including political decisions, economic changes, or major global incidents. Under the proposed legislation, the president, vice president, and members of Congress would be prohibited from participating in such trades. Senior officials in the executive branch would also face limitations, and anyone found violating the rules could face penalties starting at $10,000.
Merkley explained that members of Congress and other senior government officials often receive confidential briefings that provide them with sensitive information not available to the public. Because of this, proving insider trading directly can be difficult. However, the larger issue, he said, is the possibility that officials could misuse privileged information to gain financial benefits. Even if no wrongdoing occurs, the perception that government insiders might profit from secret information could damage public trust.
Although the proposal faces major challenges in a Republican-controlled Congress, supporters believe it could still influence how prediction markets are regulated in the future. Even if the legislation does not pass right away, it could serve as an important starting point for discussions about stronger oversight and ethical guidelines in the growing industry.
Platforms such as Polymarket and Kalshi have become increasingly popular in recent years. These websites allow users to bet on the likelihood of different outcomes, ranging from entertainment results to serious political and economic developments. Some markets focus on light topics such as sports results or awards shows like the Oscars, while others involve major issues such as election outcomes or whether the Federal Reserve will raise or lower interest rates.
Despite their popularity, these platforms have come under growing scrutiny from regulators and lawmakers. One example that drew attention involved bets placed on the fate of Iranian leader Ali Khamenei shortly before reports emerged that he had been killed in a U.S.–Israel attack on Iran. The timing of those wagers raised questions about whether some traders might have had access to information that was not publicly known.
An analysis conducted by The New York Times found a noticeable increase in betting activity predicting military action shortly before the attack occurred. The unusual surge in wagers led some lawmakers to suspect that individuals with advance knowledge may have attempted to profit from the event.
Senator Chris Murphy of Connecticut voiced strong concerns about the issue, suggesting that people close to the White House could have been aware of the planned operation before it happened. If those individuals shared that knowledge with others who then placed bets, he argued, it could represent a serious corruption scandal. Murphy has said he intends to introduce separate legislation that would prohibit trading on outcomes directly tied to government decisions or actions.
A White House official responded by noting that insider trading and gambling on government property are already illegal under existing rules. However, the official did not specifically address Murphy’s claims about the possibility of people using inside information to place prediction market bets.
Worries about prediction markets had already been growing before the Iran-related bets gained attention. Senator Adam Schiff and several other Democratic lawmakers wrote to the head of the Commodity Futures Trading Commission urging regulators to restrict event contracts tied to violent or harmful outcomes. These include bets involving death, war, or physical injury.
The lawmakers highlighted several controversial examples of wagers that had appeared on prediction platforms. These included predictions about a potential explosion during a NASA rocket launch, the possibility of a Russian attack on a Ukrainian town, and speculation about the political fate of Maduro in Venezuela.
Merkley said his concerns deepened after observing unusual betting activity related to the Iran strikes. Earlier, he had also noticed a case where an anonymous trader reportedly earned more than $400,000 by correctly predicting that the United States would intervene in Venezuela and remove Maduro from power.
According to Merkley, that prediction raised serious questions because the operation had reportedly been kept extremely secret, even from Congress, in order to avoid leaks. If someone outside the government managed to predict the event accurately, he believes it is very possible that confidential information may have been shared with a trader beforehand.
Interestingly, Merkley said his office discussed the bill with Kalshi before formally introducing it. Kalshi, which operates under regulation from the CFTC, has said it supports stronger oversight measures to prevent insider trading and ensure that prediction markets operate with transparency and integrity.
The proposal also arrives shortly after the creation of a new advocacy organization called Gambling Is Not Investing. The group is led by former White House chief of staff Mick Mulvaney and is advocating for tighter state-level regulations on prediction markets.
Even with increasing scrutiny, the legislation faces significant political obstacles. So far, no Republican lawmakers have joined Merkley and Klobuchar as co-sponsors, making it difficult for the bill to advance in the current Congress.
Meanwhile, Representative Ritchie Torres of New York has introduced similar legislation in the House of Representatives. His proposal would prevent federal officials and government employees from placing bets related to government policy decisions, political actions, or election outcomes.
Torres argues that insider trading is already banned in traditional financial markets, so prediction markets should follow the same standards of fairness and transparency. Although the proposal currently has support mainly from Democratic lawmakers, Torres believes that bipartisan backing could develop over time as scrutiny of prediction markets continues to grow.
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