Prediction markets are facing scrutiny, particularly in relation to so-called "mention markets," where users can profit if specific words or phrases are spoken during notable events. Such markets came under fire last month following allegations against Gabe Perez, a long-serving teleprompter operator at the White House. Reports indicated that Perez executed over a dozen trades concerning speeches by former President Donald Trump, purportedly profiting around $100,000 on Kalshi. In light of these allegations, Perez was placed on unpaid leave, and the U.S. Commodity Futures Trading Commission (CFTC) is reportedly reviewing the legality of mention markets, according to NPR on August 13.
Karoline Leavitt, the White House Press Secretary who announced her resignation this week, called Perez a "disgrace" in connection with the alleged activities. Kalshi's surveillance team had previously flagged Perez's trades, leading to the freezing of nearly $90,000 in potential earnings. The White House further ordered Perez's leave, prompting federal regulators to examine the implications for derivatives trading.
This year, the popularity of mention markets has soared, especially during major sporting events like the FIFA World Cup, where operators saw millions in trading volume. Following the controversy, Kalshi has decided to eliminate all sports-related mention markets.
No comments have been made yet by either the CFTC or Kalshi regarding the review.
In parallel, the CFTC issued guidance on August 12, concerning self-certification processes for incentive programs within prediction markets. The agency has noted an increase in inadequacies in self-certifications, emphasizing the need for transparency and adherence to regulatory obligations when submitting these self-certifications for market-making and trading programs. The CFTC highlighted that when dually operating as Designated Contract Markets (DCMs), all fee structures must remain comparable and should not offer preferential treatment without clear disclosures.
The issue of VIP programs in sportsbooks has also attracted attention lately. Reports surfaced before the Major League Baseball All-Star Game that Philadelphia Phillies player Bryce Harper recorded a personalized video expressing gratitude to a VIP bettor, Terry Thompson, who has since sued FanDuel, alleging that the company used VIP incentives to lure him back to gamble on their platform. Thompson claims to have suffered losses of at least $1.5 million due to a gambling addiction and has sought help as a result. Recently, Senator Richard Blumenthal, along with two members of the U.S. House of Representatives, recommended against advertising tied to VIP betting programs.
