Senators Target Prediction Market Trading by Federal Officials
Merkley and Klobuchar introduce legislation to ban government insiders from profiting on Polymarket and Kalshi, extending STOCK Act principles to a $60 billion market plagued by suspicious trades.
Democratic senators Jeff Merkley and Amy Klobuchar introduced legislation on 5 March banning the president, vice president, and members of Congress from trading on prediction markets, responding to a series of suspicious trades ahead of US military operations in Venezuela and Iran.
The End Prediction Market Corruption Act would prohibit federal elected officials from purchasing event contracts on platforms like Polymarket and Kalshi, with violations carrying fines of at least $10,000 per offense. The legislation aims to prevent officials from trading on information gained through their government roles, according to Merkley’s office.
The bill follows reports of individuals earning massive payouts before Iran strikes and Venezuelan military actions. In January, a Polymarket user made trades worth hundreds of thousands of dollars on Venezuelan President Nicolás Maduro being removed from power less than 24 hours before he was captured; last week, a user named ‘Magamyman’ made $553,000 on the death of Iran’s Ayatollah Khamenei just before he was killed by US-Israeli strikes, according to InGame.
The Ethics Gap
The legislation extends principles from the 2012 STOCK Act, which restricts congressional stock trading based on nonpublic information, to the rapidly growing prediction market sector. Total trading on Prediction Markets exceeded $60 billion in 2025 – a 400% increase from 2024, according to Akin Gump.
The bill would ban the president, vice president and members of Congress from trading event contracts, and ban non-elected senior executive branch officials from trading on contracts related to their work. A senior executive branch official is defined as any non-elected government official who meets the criteria to be required to file a report disclosing their income, assets, liabilities, financial transactions, and other potential conflicts of interest – including civil servants paid at or above the top level of the federal government pay scale, members of the military at brigadier general or rear admiral and above, according to InGame.
“When public officials use non-public information to win a bet, you have the perfect recipe to undermine the public’s belief that government officials are working for the public good, not for their own personal profits.”
– Senator Jeff Merkley
The legislation strengthens the Commodity Futures Trading Commission’s ability to go after bad actors and provides rules of the road to prevent those with confidential government or policy information from exploiting their access for financial gain, Klobuchar stated.
The Senate bill differs from companion House legislation introduced in January by Representative Ritchie Torres. The House bill is narrower in scope, as it would only ban trading by government officials if that official possesses or may reasonably obtain material nonpublic information, whereas the new Senate bill would completely ban officials in elected offices from trading event contracts, InGame reported.
Enforcement Challenges
While existing insider trading law already covers some prediction market activity, enforcement faces structural obstacles. The straightforward answer is that nothing about the law changes – the label “prediction market” does not alter the underlying anti-fraud analysis, according to Hodder Law.
The CFTC regulates both Kalshi and Polymarket as designated contract markets. In February 2026, the agency issued an advisory asserting “full authority to police illegal trading practices” on prediction markets. Polymarket operates with pseudonymous blockchain-based accounts, making trader identification difficult. Kalshi has already sanctioned users for insider trading violations, including a $20,397 penalty for trading on material nonpublic information.
Polymarket is highly pseudonymous – naturally, that level of anonymity makes it the platform of choice for anyone wanting to hide their identity, such as someone trading on non-public information, MEXC News noted. The CFTC’s Division of Enforcement has issued an advisory following public release of two enforcement cases involving misuse of nonpublic information and fraud with respect to certain prediction markets traded on KalshiEX, according to the CFTC.
After one anonymous Polymarket user made more than $400,000 by correctly predicting the US would invade Venezuela, Merkley noted that the secretary of State said they didn’t notify Congress because of concerns about leaks – “you’re talking about an incredibly tightly held piece of information, it seems extraordinarily likely that somebody in that tight group conveyed information to someone who traded”, he told CNBC.
Market Integrity Questions
The legislation arrives as prediction markets face broader regulatory scrutiny. The standoff has led to litigation between the platforms and states in at least eight states, and officials in 11 states have sent cease and desist orders to prediction market companies, Stateline reported.
The bill was introduced after consultation with Kalshi, one of the world’s largest prediction markets regulated by the CFTC. Kalshi in a statement offered support for Congress and regulators taking action to police insider trading, noting they’ve had outreach from policymakers including Senator Merkley, CNBC reported.
The rise of political participation raises additional concerns. Donald Trump Jr. is a strategic advisor to Kalshi while also being invested in Polymarket through his investment firm 1789 Capital, according to Front Office Sports. The CFTC under President Biden barred Polymarket from operating in the US under a settlement agreement; by contrast, the Trump-era CFTC allowed Polymarket to relaunch after it acquired a licensed derivatives exchange.
Constitutional Considerations
Academic legal scholars have previously identified First Amendment issues with prediction market Regulation. Research from 2008 argued that prediction markets contain expressive elements and that legislation restricting them might harm predictive speech, distinguishing prediction markets from other regulated areas such as gambling and securities trading, according to a paper published in the Tennessee Law Review.
However, the current legislative approach targets participants rather than platforms. Prediction markets tied to political and policy outcomes raise serious ethical concerns when accessed by individuals with inside knowledge of government decision-making – this legislation establishes clear guardrails to ensure that public servants cannot profit from information gained through their official roles or from outcomes they may influence, according to Torres’s office.
- Legislation applies absolute ban to elected federal officials; conditional ban to senior appointees based on their portfolio
- Bill lacks Republican co-sponsors in divided Congress, creating uncertain passage prospects
- House version already stalled in committee since January introduction
- CFTC enforcement remains limited despite public advisory on insider trading authority
What to Watch
GOP lawmakers have not signaled their support for Merkley’s or similar proposals, which means the new measure would be hard to pass into law in a Republican-controlled Congress – the bill as introduced does not have any Republican co-sponsors, CNBC noted. Senator Chris Murphy is expected to introduce complementary legislation targeting event contracts tied to government actions more broadly.
The CFTC under Chairman Mike Selig is monitoring insider trading but has not brought enforcement actions despite multiple suspicious trades. US Attorney for the Southern District of New York Jay Clayton stated on 5 February 2026 that he expects to see fraud prosecutions relating to trading on prediction markets, signaling potential criminal enforcement ahead, according to Akin Gump.
State litigation against Kalshi and Polymarket continues in federal courts across eight states. Multiple cases challenging whether the CFTC has exclusive jurisdiction over sports event contracts are working toward potential Supreme Court review in 2027. Platform operators have secured billions in institutional backing – Polymarket raised up to $2 billion from Intercontinental Exchange in October 2025, while Kalshi closed a $1 billion round led by Paradigm in early 2026.