TLDR
- New York and Illinois governors signed executive orders banning state employees from using non-public information to trade on prediction markets
- California had already expanded ethics rules in late March to cover prediction market trading by government workers
- Tennessee is moving to make prediction market participation a felony, while Kentucky banned state-licensed gaming operators from the sector
- Multiple federal bills have been introduced targeting insider trading on prediction markets, including the PREDICT Act and STOP Corrupt Bets Act
- The CFTC faces growing pressure from Congress over its handling of geopolitical event contracts and possible insider trading
The governors of New York and Illinois took action this week to ban insider betting on prediction markets by state employees. The executive orders target the use of non-public government information for profit on event-based contracts.
New York Gov. Kathy Hochul signed the order on the heels of a similar move by Illinois Gov. J.B. Pritzker. Hochul called the practice “corruption, plain and simple.”
Pritzker warned that prediction markets have grown into a space where people can bet on real-world events “without any oversight.” He pointed out that some of those events can be directly influenced by the people placing bets.
Both governors referenced the Trump administration’s support for prediction markets. They also raised concerns about suspicious trading activity tied to real-world geopolitical events.
Those events include the arrest of former Venezuelan leader Nicolas Maduro and U.S. military action in Iran. Questions have swirled around whether individuals with inside knowledge profited from these events on platforms like Polymarket.
California Set the Template for State Action
California moved first. In late March, Gov. Gavin Newsom expanded existing state ethics rules to explicitly cover prediction markets.
Newsom’s order went further than the others in one respect. It also bars state employees from helping family members or business partners profit using non-public information.
“Public service should not be a get-rich-quick scheme,” Newsom said at the time.
The three states now form a growing coalition of Democratic governors pushing back against what they see as a gap in oversight.
Federal Bills Pile Up in Congress
State-level action is only part of the picture. Federal lawmakers have introduced several bills aimed at the prediction market sector.
The PREDICT Act, backed by one Republican and one Democrat, targets insider trading by government officials. The STOP Corrupt Bets Act, introduced by Rep. Jamie Raskin and Sen. Jeff Merkley, takes a broader approach.
Two bipartisan Senate bills have also been filed. The Public Integrity in Financial Predictions Markets Act and the Prediction Markets Are Gambling Act both seek to impose new rules on the industry.
Congressman Seth Moulton was among the first in Congress to ban his own staff from participating in prediction markets. He has also pressed the CFTC on its failure to act on geopolitical event contracts.
Sen. Richard Blumenthal sent a letter directly to Polymarket questioning how the platform handles contracts tied to geopolitical developments.
The White House Management Office also sent a staff-wide email in March reminding employees that using government information for personal financial gain is prohibited.
At the state legislature level, the pressure continues to build. Tennessee’s SB1992 has passed both chambers and would make prediction market participation a felony if signed into law.
Kentucky recently passed a gambling bill that includes provisions barring state-licensed gaming operators from engaging in prediction markets. Minnesota, Iowa, and New York legislatures are also discussing similar measures.
The legal status of prediction markets remains unsettled. Courts are currently hearing cases on whether the sector falls under federal derivatives law or state gambling statutes.
The CFTC has faced repeated questions from members of Congress about why it has not acted against geopolitical event contracts or investigated possible insider trading on these platforms.
