Reed & Hickenlooper Urge CFTC to Increase Transparency, Prohibit Wagers on War & Investigate Insider Trading through Online Prediction Markets

WASHINGTON, DC - When will the Commodity Futures Trading Commission (CFTC) finally crack down on shady activity in online prediction markets? There is probably already an "event contract" on that question. And a Trump Administration "insider" could potentially make lots of money if they know the answer and place an anonymous online wager.

Noting that prediction markets should not be a vehicle for profiting off advance knowledge of military action, and that allowing them to be poses serious national security risks, U.S. Senators Jack Reed (D-RI) and John Hickenlooper (D-CO) are calling on the CFTC to prohibit event contracts tied to U.S. military operations and to investigate whether any insider trading occurred in connection with recent military strikes against Iran. The Senators want users of these platforms who trade on inside information to know they can't get away with anything and to save their receipts for when investigators eventually come knocking.

In a letter to the head of the CFTC, Reed and Hickenlooper wrote: "To address dangerous national security, market integrity, and immoral outcomes, the CFTC must enforce the law and immediately halt trading in event contracts tied to U.S. military operations. Given the high potential for insider trading and evidence that insider trading did in fact occur in the "Iran strike" contract on Polymarket, we urge the CFTC to investigate this matter on platforms that the agency regulates and ultimately bring big cases to punish significant wrongdoers."

Online prediction markets like Kalshi and Polymarket are platforms that function much like online casinos, allowing users to "invest" (wager) directly in derivatives referencing real events such as sports, elections, corporate earnings, economic data, award shows, and more in a user-friendly setting cloaked in the language of financial trading, with accompanying graphs to illustrate how individual markets are moving. Users are able to "buy" or "sell" contracts (wager) on an outcome. Both platforms have hired Donald Trump Jr. as a formal advisor and his venture capital firm has made multi-million dollar investments in Polymarket.

The CFTC regulates prediction markets in the U.S., and under current law, regulated prediction markets in the U.S. cannot allow users to place bets on wars or assassinations. While Polymarket is headquartered in the United States and has received CFTC approval to operate a derivatives market, its platform is purportedly not open to U.S. users. By contrast, Kalshi is a CFTC-regulated prediction market available to U.S. retail investors, but has exploited loopholes to allow users to place bets even in states where gambling is illegal and to allow users to profit from event contracts involving or related to assassination and war.

In their letter, Reed and Hickenlooper argue: "These contracts are so dangerous to the national security of the United States and so offensive to U.S. values that they far outweigh any legitimate risk-management purpose. Traders with inside information that specific geopolitical events will occur or who can directly influence such events can easily buy event contracts. Given the high potential for insider trading, a surge in buying activity and a rapid price increase can signal that the reference event will occur. Such a pattern could tip off our adversaries that U.S. intervention is imminent. By contrast, speculation in traditional financial instruments that may be linked to geopolitical instability, such as oil, gold, and currencies, do not send direct and specific signals that an attack in one specific country is imminent. And the ability to trade event contracts tied to violent geopolitical events could create financial incentives for someone to actually commit violence for profit."

The U.S. Senators also note the potential for market manipulation and insider trading by government officials and their inner circles could be ripe for corruption.

Just hours before the January 3, 2026 U.S. raid in Caracas that resulted in the capture of Venezuelan President Nicolás Maduro, a newly created and totally anonymous Polymarket account wagered over $30,000 that Maduro would be out of office by the end of the month - netting a $400,000 profit. And ahead of the July 2025 military conflict between Israel and Iran, an anonymous Polymarket user correctly predicted the timeline for that 12-day war and won more than $150,000 before going dormant for six months. That account became active again just before last weekend's U.S.-Israeli strikes on Iran.

In their letter, the Senators note that: "Activity in prediction markets regarding the war with Iran that began on February 28 demonstrates how event contracts tied to U.S. military operations are morally repugnant and provide no social benefit. On offshore platform Polymarket, which is not regulated by the CFTC, at least six wallets made more than $1 million in profits in just hours by betting that the U.S. or Israel would strike Iran by that date. According to reporting by Bloomberg, this activity is the "hallmark" of insider trading. An investigation is already underway by Israeli authorities. On CFTC-regulated platform Kalshi, traders bet whether Ayatollah Khameini would be "out as Supreme Leader" by that date. Kalshi was still promoting the Khameini market as its "featured market" throughout the day of military strikes, encouraging speculation on war or death. After Khameini died, the platform "clarified" that payouts under the contract would be limited and announced that some trading fees would be refunded. Despite these efforts, many traders still apparently profited from price appreciation after the strikes had started but before Khameini's death was confirmed. The contract resolved when Khameini died, providing strong evidence that this is a death market and that traders profited directly from speculation on war."

Unlike a casino that offers odds, prediction markets offer a type of derivative known as an event contract. An event contract has a nominal value - often $1 - and traders can buy "yes" or "no" positions on it for some fraction of that value and the 'odds' adjust accordingly. When the outcome of the event happens, the contract pays out to whoever was right. The "House" (or platform) always wins by charging trading fees that are linked to the odds of the contract, regardless of which side is correct, in addition to fees to withdraw winnings from the platform to your bank account. In addition, big institutions are "market makers" on these platforms - meaning they stand ready to buy and sell contracts regardless of the price - and some of them own a part of the "House" (or platform). In many cases, users are not betting against each other - but rather against an institutional investor that owns a piece of the House.

Full text of the letter follows:

Dear Chairman Selig:

We write to urge the Commodity Futures Trading Commission to prohibit event contracts tied to U.S. military operations and investigate whether any insider trading has occurred in connection with recent military strikes against Iran.

Event contracts are derivatives that provide anyone with the chance to wager on whether something will occur. Under the Dodd-Frank Act and the CFTC's rules, event contracts that "involve, relate to, or reference assassination or war" are prohibited. This category includes event contracts that predict whether a U.S. adversary will no longer be in office, such as Ayatollah Khameini in Iran, Nicolas Maduro in Venezuela, or Miguel Diaz-Canel in Cuba. Because these leaders are so entrenched and protected by vast military forces, their continued leadership is perceived to be completely insulated from removal except by armed intervention. As a result, event contracts referencing their ouster "involve or relate to" war.

These contracts are so dangerous to the national security of the United States and so offensive to U.S. values that they far outweigh any legitimate risk-management purpose. Traders with inside information that specific geopolitical events will occur or who can directly influence such events can easily buy event contracts. Given the high potential for insider trading, a surge in buying activity and a rapid price increase can signal that the reference event will occur. Such a pattern could tip off our adversaries that U.S. intervention is imminent. By contrast, speculation in traditional financial instruments that may be linked to geopolitical instability, such as oil, gold, and currencies, do not send direct and specific signals that an attack in one specific country is imminent. And the ability to trade event contracts tied to violent geopolitical events could create financial incentives for someone to actually commit violence for profit.

Activity in prediction markets regarding the war with Iran that began on February 28 demonstrates how event contracts tied to U.S. military operations are morally repugnant and provide no social benefit. On offshore platform Polymarket, which is not regulated by the CFTC, at least six wallets made more than $1 million in profits in just hours by betting that the U.S. or Israel would strike Iran by that date. According to reporting by Bloomberg, this activity is the "hallmark" of insider trading. An investigation is already underway by Israeli authorities. On CFTC-regulated platform Kalshi, traders bet whether Ayatollah Khameini would be "out as Supreme Leader" by that date. Kalshi was still promoting the Khameini market as its "featured market" throughout the day of military strikes, encouraging speculation on war or death. After Khameini died, the platform "clarified" that payouts under the contract would be limited and announced that some trading fees would be refunded. Despite these efforts, many traders still apparently profited from price appreciation after the strikes had started but before Khameini's death was confirmed. The contract resolved when Khameini died, providing strong evidence that this is a death market and that traders profited directly from speculation on war.

Insiders face little risk of penalty under the CFTC's current enforcement program. The insider trading laws for commodities markets are underdeveloped compared to analogous laws in securities markets. To date, the CFTC has not brought a single enforcement case involving prediction markets. All the CFTC has done is issue a press release highlighting two minor infractions that were addressed internally under Kalshi's own terms and conditions, one involving $246.36 in illicit profits and another involving $5,397.58. That signals a lax oversight regime and will not deter insider trading.

To address dangerous national security, market integrity, and immoral outcomes, the CFTC must enforce the law and immediately halt trading in event contracts tied to U.S. military operations. Given the high potential for insider trading and evidence that insider trading did in fact occur in the "Iran strike" contract on Polymarket, we urge the CFTC to investigate this matter on platforms that the agency regulates and ultimately bring big cases to punish significant wrongdoers.

We would appreciate your immediate action on this important matter and look forward to your prompt reply.

Sincerely,

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