As Democrats take the reins in Washington DC this January, one of their key targets looks to be the wide world of prediction markets, which have been allowed to run roughshod under the Trump administration.
Adding to the industry’s woes, the US Commodity Futures Trading Commission just issued a warning to the prediction market Kalshi, informing it of imminent charges stemming from an investigation into the company’s experimental financial products.
As Politico reports, the investigation stems from dozens of products and services which Kalshi allegedly began offering consumers without notifying the CFTC. The exact charges coming down the pike aren’t yet known, but as one anonymous insider told Reuters, the notification seems to suggest they’re coming soon.
For its part, Kalshi told the publication the CFTC’s warning is about little more than a “procedural error involving the submission of a handful of contracts, many of which weren’t live.”
“We are already addressing the issue,” as a Kalshi spokesperson told Politico.
According to further reporting from CNBC — which has a commercial relationship with Kalshi, it’s worth noting — the investigation stems from the company’s sale of “event contracts” related to the weather. Event contracts are rule-bending prop bets dressed up as financial instruments, which let gamblers place bets on the outcome of specific “yes or no” questions related to real-world happenings.
For example, one weather event contract trading on Kalshi right now asks whether or not the rain total in Los Angeles this month will exceed one inch, two inches, or three inches, with each choice trading under different odds (trading volume for that particular market stands at $28,000 this month, for those wondering.)
Under Donald Trump’s second administration, prediction markets have been allowed to self-certify these event contracts without CFTC involvement, as long as they follow the rules of the US Commodity Exchange Act.
With this move, it seems the CFTC has found something that violates that norm — though what the offending conduct was is unclear. Either way, it could shape up to be a major reversal over years of self-regulation, a free-wheeling policy environment which coincided with windfall profits for companies running prediction markets.
The pending enforcement action comes on the heels of an unrelated federal probe into rival prediction market Polymarket, which was found to be tangled up in a $10 million off-shore fraud scheme.
More on gambling: “Prediction” Markets Were Comically Wrong About the Brazilian Election
