On Tuesday, the Commodity Futures Trading Commission (CFTC) issued a pointed advisory to prediction market operators, highlighting concerns over ongoing insider trading in "mention markets". The letter from the CFTC's Division of Market Oversight (DMO) addressed companies like Kalshi and Polymarket, warning that failure to properly vet these markets for potential manipulation could lead to unprecedented regulatory action, including the rejection of self-certified event contracts.
CFTC Chairman Michael Selig spoke on CNBC Wednesday, emphasizing the commission's rigorous standards: "There’s effectively a presumption against these contracts. We’re going to hold them to a high standard."
However, the advisory lacks legal authority and does not alter the CFTC's largely hands-off approach to overseeing event contracts. The letter clarifies that it does not create or amend any binding rules or regulations, merely representing the views of DMO staff rather than the commission as a whole.
In the context of the advisory, DMO defines mention markets as those focused on verbal expressions or individual attendance at events. It noted, "As the settlement of contracts in Mention Markets may be controlled by a single individual, a small group of individuals, or persons with access to or influence over the individual whose words, attendance, or interaction determines settlement, DMO staff may view Mention Markets as presumptively readily susceptible to manipulation."
Recent high-profile cases involving mention-market manipulation have drawn attention to the need for vigilance. Notably, Gabriel Perez, a teleprompter operator for President Donald Trump, reached a settlement with the CFTC after being found guilty of exploiting insider information regarding Trump’s speeches on Kalshi, resulting in a fine approximately equal to half of his illicit profits, along with a three-year trading ban.
Similarly, former Congressman George Santos, who received a commutation of his prison sentence from Trump, also settled CFTC allegations of manipulation. He reportedly used social media to influence Kalshi markets about his potential attendance at the 2026 State of the Union address, and subsequently faced a $35,000 fine along with a three-year trading ban.
Despite these significant settlements, the CFTC’s warning does not manifest in proactive measures to avoid future violations, contrasting traditional gambling regulations at the state level. Selig stated that while they will review contracts that exchanges believe are not vulnerable to manipulation, there is still the CFTC's ability to reject any contracts that do not meet their standards. Yet, the CFTC has yet to deny any self-certified event contracts during the Trump administration, upholding Selig’s philosophy of minimal regulatory intervention.
The advisory reaffirmed, "This advisory is informational and does not create new obligations, nor supersede the Act or Commission regulations thereunder. Registered entities making event contracts available on their platforms remain responsible for ensuring compliance with applicable statutory and regulatory requirements."
