Amid rising concerns over suspicious trades linked to the removal of Venezuelan leader Nicolas Maduro, Senator Catherine Cortez Masto, a Democrat from Nevada, has reached out to the U.S. Commodity Futures Trading Commission (CFTC) regarding potential insider trading on prediction markets. In a four-page letter sent on Sunday, she highlighted irregular trading patterns that warrant scrutiny.
Earlier this year, an anonymous trader executed a $30,000 bet on the ousting of Maduro on the prediction market Polymarket, just hours before U.S. military forces stormed his compound in Caracas. The trader ultimately made approximately $436,000 from this deal. While there is no concrete evidence of insider information influencing the trade, Cortez Masto expressed concern about the suspicious timing of this transaction. Nearly a dozen fellow Democratic senators co-signed her letter.
Although Polymarket US is registered as a CFTC Designated Contract Market, it hasn't fully launched in the United States and the notable $30,000 trade was reportedly made outside of U.S. borders. Despite this, Cortez Masto stressed the urgent need for inadequate protections against insider trading within these markets. She emphasized the dangers posed by the increasing volume of trades against Maduro’s authority, stating, "This improbable increase in trades against Maduro’s continued authority in Venezuela mere hours before Maduro’s capture exemplifies the dangers of unregulated gaming."
Cortez Masto's extensive legal background includes serving as Nevada's attorney general from 2007 to 2015 and a former role as a federal prosecutor in Washington, D.C. She also worked as a civil attorney in Las Vegas and was chief of staff for former Nevada Governor Bob Miller.
The senator referenced CFTC Rule 40.11, which prohibits event contracts related to war, assassination, and terrorism if deemed harmful to the public good. In addressing CFTC Chairman Michael Selig, she raised national security concerns over insider trading misusing event contracts. According to her, if these contracts are influenced or manipulated by insider knowledge, foreign adversaries might exploit the situation.
Besides the Maduro contract, Polymarket has hosted markets on other significant international issues, such as a contract predicting U.S. military action against Iran by June 30, which has attracted over $16.8 million in trading volume. There are additional contracts allowing trades on the potential breakdown of a ceasefire between Iran and Israel, with one option priced at 70 cents for a projected payout of $142.86 on a $100 contract.
In a separate but related matter, the American Gaming Association and the Indian Gaming Association submitted a joint letter to Congress advocating for regulation of prediction markets. They argue that the current discussions around cryptocurrency legislation present a bipartisan chance to restrict what they view as illegal gambling camouflaged as "event contracts." They urged lawmakers to include provisions in cryptocurrency regulations that would ban gambling activities on CFTC-registered platforms.
Over the past year, at least nine states have issued cease-and-desist orders against Kalshi for offering contracts in their regions. Most recently, Tennessee sent cease-and-desist letters to Kalshi, Polymarket, and Crypto.com demanding that they halt the sale of sports event contracts statewide. Kalshi has responded by asserting that such state orders are preempted by federal law under the Commodity Exchange Act.
The rising prevalence of event contracts has ignited a conflict between advocates for states' rights and those who argue for federal preemption in derivatives regulation. During his Senate confirmation hearing, Chairman Selig recognized the importance of ensuring that event contracts remain unscrutinized and protected from manipulation. In her correspondence with Selig, Cortez Masto enumerated nine concerns related to preventing insider trading. The CFTC has not commented on the matter.
