U.S. Democrats focus on government officials participating in prediction markets related to military actions.

Possible signs of insider knowledge related to U.S. military actions have prompted Democrats from both the Senate and House of Representatives to propose a new piece of legislation.

Senator Chris Murphy (Andrew Harnik/Getty Images)

Key points:

• Democrats in Congress are advocating for legislation to prevent government officials and others from placing bets in prediction markets when they possess knowledge of the outcome.
• The proposed bill arises from concerns that government insiders made bets prior to the military actions in Venezuela and Iran.
• This new legislation follows a similar initiative introduced by Representative Ritchie Torres in January.

Democratic lawmakers are seeking to prevent possible exploitation of prediction markets by government officials who wager on events they are aware of, such as military interventions by the U.S., as outlined in a new bill set to be introduced on Tuesday.

The Banning Event Trading on Sensitive Operations and Federal Functions (BETS OFF) Act aims to prohibit unethical betting by individuals who have prior knowledge of events, including governmental actions, acts of terrorism, warfare, assassinations, and other situations they are privy to. The bill is supported by Senator Chris Murphy, a Democrat from Connecticut serving on the Senate Foreign Relations Committee, who has been a vocal critic of President Donald Trump’s administration, along with Representative Greg Casar, a member of the House Committee on Oversight and Government Reform.

The legislators indicated that they are reacting to information suggesting that prediction market accounts placed large bets ahead of U.S. operations in Venezuela and Iran. Although the legislation from Democrats may not be prioritized in a Congress still majority-controlled by Republicans, the upcoming midterm elections are anticipated to potentially shift the House back to a Democratic majority — and possibly the Senate as well, according to the same prediction markets the legislators are addressing. If Democrats regain control of congressional committees, their favored legislation could have a better chance of being heard.

As stated in the bill’s text, any type of wager that could lead to insider trading would be prohibited. This restriction goes beyond actions related to the government, according to a one-page document released with the bill text. Events such as unexpected performers during the Super Bowl halftime show or the outcomes of award ceremonies would also be banned “because insiders are aware of the results beforehand.”

The bill’s language defines “specified events” as including “any event … the outcome of which is completely controlled by any individual; or the outcome of which is known by any individual in advance.”

Market manipulation and fraudulent betting fall under the jurisdiction of the platforms’ regulator, the U.S. Commodity Futures Trading Commission. Mike Selig, the chairman appointed by Trump, is an advocate for prediction markets, arguing that they can serve as a remedy for inaccurate political polling and media coverage.

There are also potential insider-trading issues, as evidenced by recent internal disciplinary actions taken by one of the prominent firms, Kalshi. The firm suspended and penalized two users, including a political candidate who had wagered on his own campaign for California governor, knowing the result beforehand.

In January, Representative Ritchie Torres, a Democrat from New York and a long-time supporter of the crypto industry, introduced a bill with the backing of numerous colleagues aimed at combatting insider trading following suspicious wagers on events in Venezuela. Additionally, just last week, Senator Adam Schiff from California presented a bill to prohibit prediction market contracts associated with war, terrorism, assassinations, or death entirely, while fellow Democratic Senator Richard Blumenthal proposed his own legislation focusing on insider trading and market manipulation.

Murphy’s bill would similarly prevent the CFTC from allowing contracts related to these topics altogether.