Political campaign staff members are actively and illegally trying to purchase contracts in prediction markets, NPR reported on Thursday.
According to the report, America’s leader in prediction market activity, Kalshi, banned “dozens” of workers who attempted to purchase outcomes related to their candidate. The platform blocked all of the trades from accounts that were traced to campaigns.
Taking a firm stance
Kalshi has a new integrity program that cross-checks the names of campaign staffers registered with the Federal Election Commission (FEC) against trading accounts. In the event that a conflict of interest is determined, Kalshi has the right to ban contract sales and the account of the individual in question.
“If we’re able to identify a potential match, we have markets that are associated with each of the campaigns that are flagged, and those individuals would be prevented from placing trades on those markets, Robert DeNault, Kalshi’s head of enforcement and legal counsel, said during an interview with NPR.
Despite that, it was reported that at least one individual affiliated with a political campaign, who was documented in FEC records, was allowed to trade on a race in which they were involved. That anonymous individual confirmed their activity with NPR.
“Common” integrity violations
Kalshi unveiled its FEC monitoring program in May, shortly after NPR reported that various staffers had profited thousands of dollars by using private polling information.
“Myself and others started placing bets before [a] poll came out,” one anonymous staffer told NPR. “And then, sure enough as soon as that poll came out, the stock went up and everybody made money.” “Because you have all this information and knowledge that isn't publicly available yet, it's almost foolish not to bet on it before it's made public.”
The staffer — who only spoke to NPR under the condition of anonymity not to threaten their employment opportunities in future campaigns — said that using privileged information to trade on prediction markets was a regular activity for staffers.
Using polling data before it is released to the public to assist in making trades would represent a violation of prediction platforms’ Commodity Futures Trading Commission-prescribed (CFTC) rules, an expert said.
“It's illegal or a violation of the Commodity Exchange Act if you have material, non-public information and you have a duty not to use that,” said Jeff Le Riche, a former 20-year employee and Chief Trial Attorney for the CFTC.
Not a perfect system
Kalshi’s approach to limiting campaign staffers from trading on political races they’re associated with isn’t foolproof. For starters, FEC reports don’t list every campaign member, including volunteers, lawyers, pollsters, and subcontractors, said Sean Cooksey, the former FEC chairman.
“While I think this data may be helpful in giving some picture about who is working on a particular campaign, it is by no means a complete one,” he said. “It is not a complete list of every person who does any kind of work for the campaign.”
Kalshi also cannot access the identities of friends, family members, and associates of individuals who are working on campaigns and may share sensitive information or use other accounts to place their trades.
The House Oversight Committee is already investigating Kalshi and its top rival, Polymarket, for their approach to tackling insider trading, which is banned on both platforms. Both gave the committee private briefings on preventive measures in June.
The Trade Handle Prediction Markets Take
This is one area in which enforcing full regulation will be difficult for prediction platforms. Kalshi recently proposed a new disclosure rule that would require accountholders to share their occupation and affiliations to help reduce fears of insider trading. Prediction markets also already track and report suspicious activity whenever it is detected.