Washington lawmakers are turning up the heat on prediction markets, moving to close what they see as an ethical loophole that lets powerful insiders profit from political outcomes. A group of House Democrats on Friday rolled out legislation that would bar federal officials from making wagers on prediction platforms — a move sparked by a string of eye-catching bets critics say look uncomfortably close to insider trading.
The proposal, called the Public Integrity in Financial Prediction Markets Act of 2026, would draw a hard line for people working in or around the federal government. Elected officials, political appointees, executive branch employees, and congressional staffers would be prohibited from buying or selling prediction contracts tied to government policy, government action, or political outcomes when they possess — or could reasonably access — material nonpublic information through their jobs.
The push is being led by Rep. Ritchie Torres (D-N.Y.) alongside former House Speaker Nancy Pelosi, underscoring that concerns about betting markets stretch across different wings of the Democratic caucus. Torres didn’t mince words about the stakes. “The most corrupt corner of Washington, D.C. may well be the intersection of prediction markets and the federal government—where insider trading and self-dealing are no longer imagined risks but demonstrated dangers,” he said, adding that the public ignores “plain-sight corruption at our own peril.” He raised a hypothetical to illustrate the risk: what if a member of the Trump administration placed a bet predicting the removal of Nicolás Maduro?
That scenario didn’t land out of nowhere. The bill follows scrutiny of a roughly $400,000 payout tied to a Polymarket contract on the possible removal of the Venezuelan president — a trade critics say may have benefited from privileged insight into U.S. activities. For supporters of the legislation, it’s a wake-up call about what can happen when market speculation meets classified or sensitive information.
Backing the effort are lawmakers and policymakers who argue that insider knowledge simply shouldn’t mix with financial wagering. Senator Chris Murphy is among those saying that when Washington insiders sit on information the public can’t see, they should be blocked from betting on it — echoing long-standing principles from securities insider-trading rules.
Interestingly, even within the industry there is some support. Kalshi CEO Tarek Mansour has voiced approval of the bill, noting that his exchange already enforces insider-trading restrictions. The sharpest worries, he and others suggest, come from decentralized markets that lack strong guardrails and could leave retail participants exposed to unfair advantages.
Not everyone is convinced that tighter limits are the answer. Opponents of new restrictions say prediction markets help surface real-time information and crowd wisdom. But lawmakers behind the bill counter that whatever informational upside exists doesn’t outweigh the risk of officials profiting from policy or political outcomes — especially when that profit could come from information only they possess. That, they argue, erodes public trust and shows why clearer ethical boundaries are needed.
The debate highlights a broader tension: as financial technology evolves, lines between governance, markets, and data are blurring. This latest legislative effort signals that Congress is increasingly focused on how prediction platforms collide with government power — and whether current rules are strong enough to keep public service and private profit from overlapping.
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