Campaign staffers are increasingly leveraging non-public polling data to generate personal income through election prediction markets, a practice described by some as operating in a "Wild West" environment. One staffer, speaking anonymously due to concerns about professional repercussions, detailed how they and colleagues profited significantly by betting on their own candidate's prospects based on internal polling information that had not yet been released to the public. This strategy involved acquiring "event contracts" on prediction platforms at low prices before the information became widely known, subsequently selling them at a higher value once the data, such as a favorable unreleased poll, was made public and influenced market prices.
This particular staffer, who worked on a statewide campaign in the Southern United States, explained that the practice was common within their campaign and others they subsequently joined. The core of the strategy relied on having access to information that was not yet reflected in the prediction market's pricing. For instance, if an internal poll showed a candidate performing significantly better than the market anticipated, staffers could purchase contracts representing that candidate's success at a reduced cost. Once the poll was officially released, the market would adjust, increasing the value of these contracts and allowing the staffer to sell them for a profit. The staffer reported making "thousands" of dollars through such trades, highlighting the potential financial gains available.
The use of private, non-public information for betting on prediction markets raises significant legal and ethical questions. Jeff Le Riche, a former trial lawyer at the Commodity Futures Trading Commission (CFTC) with two decades of experience in insider trading and market manipulation, noted that such activities could potentially violate the Commodity Exchange Act. He explained that the key elements for an investigation would include the possession of material, non-public information, a duty not to use that information, and an understanding that the information was indeed non-public and material. Le Riche indicated that a campaign staffer's employment agreement and the user agreement of the prediction market platform would be crucial documents in determining whether a breach of duty occurred, potentially leading to investigation and prosecution.
Le Riche further elaborated on the evolving regulatory landscape, describing the current state of prediction markets as akin to a "Wild West" where the lack of widespread enforcement creates an "illusion of safety" for participants. While direct CFTC investigations into political insider trading are not widely publicized, he anticipates an increase in enforcement actions as these markets grow in popularity and regulatory oversight develops. The core issue, he suggested, is the potential breach of a duty of confidentiality owed to the campaign or employer, coupled with the exploitation of privileged information for personal financial gain.
A second campaign staffer, who also requested anonymity citing fears of legal liability, corroborated the prevalence of such betting practices on statewide races along the East Coast. This individual observed colleagues placing bets based on internal polling data, especially when market predictions seemed volatile or inaccurate compared to the campaign's internal assessments. These staffers were motivated by the prospect of making quick profits, with one colleague aiming to earn "a quick $5,000." While this second staffer personally abstained from such activities, they confirmed that betting on one's own candidate using insider information was a common occurrence, particularly in the earlier stages of prediction markets when fewer participants meant easier exploitation of market inefficiencies.
This staffer suggested that the perceived lack of stringent rules and regulations contributed to the comfort level of campaign operatives engaging in these bets. They expressed the view that without significant federal intervention or regulatory changes, the prediction market environment would likely continue to operate as a "Wild West." This sentiment underscores a broader concern about the adequacy of existing regulatory frameworks to address the unique challenges posed by prediction markets, especially when they intersect with political campaigns and the sensitive nature of insider information.
The regulatory body tasked with overseeing prediction markets, the CFTC, faces challenges in effectively policing election-related insider trading. Kristin Johnson, a former CFTC commissioner, voiced concerns about the commission's preparedness, stating that the CFTC has not yet developed sufficient "experience and expertise in policing election positions." She highlighted that the agency has not conducted a significant number of cases to test its authority in this domain, and courts have not definitively ruled on the applicability of insider trading laws to such contexts. Johnson also raised questions about the enforcement division's staffing levels and the commission's overall capacity to fulfill its mandate of protecting against fraud and market manipulation.
Johnson emphasized the need for legislative clarity, suggesting that Congress should provide the CFTC with a "clear direction of travel" regarding the regulation of "political event contracts." In response to these growing concerns, the White House has issued warnings to staff about using prediction markets, and the Senate has unanimously approved a rule prohibiting senators and their staff from trading on these platforms. Senator Todd Young, a Republican from Indiana, supported the Senate's action as a "good first step" and advocated for broader restrictions that would encompass "all federally elected officials and government employees from using insider information to bet on a prediction market contract."
However, neither the new Senate rule nor proposed legislation explicitly prohibits campaign staffers from engaging in election betting. Representative Seth Moulton, a Democrat from Massachusetts, has taken a proactive stance by banning prediction markets within his House office and campaign. His campaign manager, Jeff Phaneuf, described the use of insider information for betting as "completely unethical" and stated that the campaign has implemented a verbal agreement and added the ban to its employee handbook, encouraging other campaigns to adopt similar measures. This initiative reflects a growing awareness within political circles about the ethical implications of such practices.
Election betting on prediction markets has a history, with the CFTC first authorizing limited election bets on the nonprofit platform PredictIt in 2014. This move was intended for research purposes. More recently, for-profit entities like Kalshi have entered the market, actively promoting and expanding election betting. Kalshi now facilitates billions of dollars in legal election and political wagers. Polymarket, another significant platform, also offers election bets but largely operates offshore, placing it outside the direct purview of U.S. regulations and laws. Despite bipartisan legislative efforts to ban or restrict insider betting on political and war-related events, these proposals have not advanced significantly in Congress.
The slow pace of updating government ethics rules to keep pace with the emergence of prediction markets has created a "transparency blind spot" at the highest levels of government. This regulatory lag has fueled serious concerns on Capitol Hill. In April, the House Agriculture Committee, which holds oversight over the CFTC, questioned Michael Selig, the commission's sole board member. Selig has been instrumental in clearing regulatory pathways for prediction markets and has defended them against state-level legal challenges. He asserted during a hearing that "nothing is more important than protecting market integrity," while also being a proponent of the nascent industry.
Selig is actively involved in legal battles against states that have sued prediction markets, citing violations of local laws. In February, the CFTC issued guidance aimed at prediction market firms, asserting its regulatory authority over these platforms and preempting state attempts to regulate them, particularly in relation to sports betting. The advisory also reminded prediction markets of their "obligation to list only contracts that are not readily susceptible to manipulation." This guidance aimed to establish a clearer regulatory framework and reinforce the CFTC's oversight role.
In parallel with regulatory developments, Kalshi has taken action against insider trading. In February, the platform disclosed insider trading cases involving an editor for the popular YouTube creator MrBeast and a candidate in the California gubernatorial race who publicly announced his bet on himself. More recently, in April, Kalshi suspended and fined three users for "political insider trading" following an internal investigation that uncovered instances of candidates betting on their own campaigns. These actions by Kalshi signal a move towards greater accountability within the prediction market space.
Reports of potential insider trading on prediction markets continue to surface. In April, NPR's analysis of data revealed a Polymarket trader who profited approximately $300,000 by correctly anticipating President Biden's last-minute presidential pardons. Earlier, in March, NPR reported on another Polymarket trader who wagered $553,000 on events related to Iran and its Supreme Leader, Ayatollah Ali Khamenei, shortly before an Israeli strike resulted in his death. These instances highlight the significant sums of money involved and the potential for substantial gains based on timely, non-public information.
The campaign staffer who initially shared their experience successfully sold their prediction market position shortly after the favorable poll was released and their contracts increased in value. They subsequently reviewed internal polling data that suggested a strong likelihood of their candidate's victory, reinforcing their decision to exit the market profitably. This account underscores the direct financial benefits that can be realized by strategically utilizing insider information within the current regulatory environment of prediction markets.
