Politics

With boom in prediction markets, some lawmakers worry about how to police themselves

Luke Garrett

Online prediction markets hosting bets on U.S. presidential election and regime change in Iran. Luke Garrett for NPR/Luke Garrett for NPR hide caption

In the hours leading up to the joint U.S.-Israeli attack on Iran, bets on a potential strike were being bought and sold on prediction markets like Polymarket. One trader named "Magamyman" bet big and won $553,000.

Lawmakers on Capitol Hill took notice. Sen. Chris Murphy, D-Conn., posted on X "it's insane this is legal" and accused members of President Trump's orbit of "profiting off war and death," though Murphy did not cite any evidence to support his claims. The White House denied the accusation.

These well-timed bets have raised questions about the risk of insider trading, and whether U.S. lawmakers, their staffs or family could be leveraging sensitive information to financially benefit from the war with Iran or other U.S. actions through a burgeoning market with little oversight.

Middle East conflict

Prediction market trader 'Magamyman' made $553,000 on death of Iran's supreme leader

"Nobody has said to me, 'we're making these bets,' but I'm confident that they are," said Sen. Jeff Merkley, D-Ore., in an interview.

Last week, Merkley introduced legislation that would ban members of Congress, the president and vice president from buying or selling any prediction market bets — known as event contracts.

"I mean, we've got [more than] 400 members of the House," he said. "You've got 100 senators. You've got lots of staff. I'm sure many of them ... are making bets."

If they are, the public may never know. Current government ethics guidance does not require detailed financial disclosure reports on prediction markets and event contract gains for White House staff, members of Congress, congressional staff or their family members. There are no rules for how government officials can use prediction markets specifically, as financial disclosure guidance hasn't kept up with the rise of these new markets.

Billions of dollars are wagered each week on popular prediction markets such as Kalshi and Polymarket — though there are key differences between the two. Kalshi is U.S. regulated and requires users to identify themselves. Polymarket is not fully regulated for use in the U.S., does not require identification and relies strictly on cryptocurrency. The platforms have largely catered to sports betting, but also allow users to place bets on political events like when a lawmaker might retire or drop out of a race. And that's raised fears about new ways in which politicians might be able to profit from their positions.

Venezuela and U.S. relations

A $400,000 profit on Maduro's capture raises insider trading questions on Polymarket

Unlike Kalshi, Polymarket users can place wagers on international conflicts — even though the Commodity Exchange Act bans war bets. Polymarket's exchange is largely operated internationally and doesn't allow U.S.-based bettors for most event contracts. Users often hide their identity and location with virtual private networks (VPNs) in order to access the exchange.

Anonymous users are currently betting on when U.S. ground forces will enter Iran and when a U.S.-Iran ceasefire will be reached. Back in January, an unknown trader made hundreds of thousands of dollars on Polymarket event contracts regarding the arrest of Venezuelan leader Nicolas Maduro.

The rules around disclosure

Financial disclosure instructions for the House, Senate and the White House make no mention of "event contracts" or "predictions markets." Moreover, there is no public guidance on how to report gains from these new financial vehicles.

"As of right now, there is no requirement to report event contracts, none whatsoever," Merkley said.

That's a sharp break from the rules of the road around profits from more traditional markets. Current congressional and White House financial disclosure guidance does give detailed instructions on how members, officials, their staffs and family should report gains from stocks, cryptocurrencies, bonds, commodities futures and other non-exempt securities. By law these disclosures require lawmakers and their spouses to disclose these trades and other profitable transactions within 45 days.

Blake Chisam, a former chief counsel for the House Ethics Committee, said he's not surprised by the lack of guidance for prediction markets.

"I wouldn't call this a loophole so much as a blind spot: the rules were written for blue-chip stocks and mutual funds, not yes-or-no bets on the next speaker, and the ethics framework simply hasn't caught up yet," Chisam said.

Merkley agreed, calling the lack of current guidance "a massive blind spot."

"Understandable, in that these event contracts didn't exist in this form at the time that we created disclosure on stock trading, but unforgivable if we don't fill in that blank now," he said.

Congress has faced similar "blind spots" before. The most recent example is cryptocurrency rules in the House. Bitcoin began trading in 2009, and it took nearly a decade for the chamber to update its guidance. In 2018, the leaders of the House Ethics Committee sent a General Advisory Opinion stating cryptocurrencies are "subject to reporting" for members of Congress, their staffs and families. No such guidance has been given on event contracts.

Current congressional and White House ethics rules still require outside earnings to be reported — which would in theory include prediction market gains — but the lack of specific reporting rules on event contracts limits transparency, according to University of Minnesota Law Professor Richard W. Painter, who served as President George W. Bush's top ethics lawyer.

"Members of Congress certainly have to report their earnings from event contracts," Painter said. "But the problem is they may not have to disclose what they actually bet on ... whether it was a football game or a war."

To be sure, even though updated financial disclosure rules on prediction markets would increase government transparency, event contracts on anonymous platforms like Polymarket would remain difficult to track accurately.

"It could go in a very bad direction" 

In addition to Merkley's bill, Rep. Blake Moore, R-Utah, has introduced legislation that would ban certain types of event contracts related to war and elections rather than a ban on specific officials being able to bet. But both pieces of legislation face uphill battles at a moment when Congress is already struggling to pass legislation on stock trading bans for members, which have broad public support.

To Moore, prediction markets create a moral and societal issue.

"It could go in a very bad direction if some staffer of some member of Congress or something knows when that person is going to retire and then makes a profit," Moore said. "It's basic stuff. We shouldn't be allowing for that to happen."