Kalshi, Polymarket Ban Insider Trading Amid Regulatory Scrutiny

Prediction markets let users trade event contracts tied to outcomes ranging from elections to game winners, point spreads and player statistics. Kalshi and Polymarket maintain that their US exchanges fall under the Commodity Futures Trading Commission and that the Commodity Exchange Act preempts state gambling rules. State and local authorities counter that sports contracts are functionally wagers offered without the licensing, taxes, age limits and responsible-gambling safeguards imposed on regulated sportsbooks.

Baltimore’s city government filed suit in Baltimore City Circuit Court on Aug. 13, 2026, naming Kalshi, Polymarket and distribution partners Robinhood, Webull and Coinbase as defendants. The complaint alleges the companies operated unlicensed sports-betting services and deceptively presented wagering products as federally regulated financial trading. Baltimore is seeking an injunction, restitution and disgorgement, plus civil penalties of as much as $1,000 for each violation and each day it continues. The filing did not specify an aggregate damages demand.

Prediction markets let users trade event contracts tied to sports, elections, weather and other outcomes. The core legal dispute is whether those products are gambling subject to state control or derivatives governed by the federal Commodity Exchange Act. Minnesota became the first U.S. state to enact an outright ban, escalating a nationwide jurisdictional fight between state gaming authorities and the Commodity Futures Trading Commission, which says it has exclusive oversight of swaps listed by federally regulated exchanges including Kalshi and Polymarket US.

U.S. District Judge Katherine Menendez on July 27 issued a preliminary injunction blocking Minnesota’s law days before its Aug. 1 effective date. The measure would make operating or assisting a prediction market a felony. Menendez said the CFTC, Kalshi and Polymarket were likely to succeed in showing that the Commodity Exchange Act preempts the statute for many event contracts, while enforcement would cause irreparable harm. The order remains in place until a final ruling on the merits, giving the platforms and federal regulator an interim victory.

Polymarket allows traders to use crypto assets to wager on outcomes ranging from elections to economic events, with contract prices often treated as real-time measures of collective expectations. The decentralized prediction market relies heavily on transparent blockchain records and wallet activity to establish credibility, making signs of trading on nonpublic information or coordinated bets a significant test of market integrity and a potential focus for regulators.

A Bloomberg Businessweek analysis flagged about $200 million of Polymarket trading during the first half as potentially linked to insider activity. The top 1% of profitable accounts captured more than half of all gains, while over 50% of winning wallets were created within 24 hours before placing their bets. Some traders also appeared to split positions across multiple related wallets before withdrawing proceeds through Coinbase, intensifying scrutiny of the platform’s fairness.

Prediction markets such as Kalshi and Polymarket allow users to trade event contracts tied to election and policy outcomes. Because members of Congress have access to nonpublic government information, placing such wagers could create conflicts of interest and raise insider-trading concerns. Congress is therefore seeking to extend existing financial-trading ethics rules to the rapidly growing prediction-market industry.

On June 18, 2026, Wisconsin Republican Representative Bryan Steil, chairman of the House Administration Committee, introduced the Stop Lawmakers from Predicting Act. It would bar members of Congress, their spouses and dependent children from trading event contracts involving government policies, actions and political outcomes. Violators would have to pay the greater of $2,000 or 10% of the transaction value, plus their net profit. The bill does not cover White House officials.

Kalshi and Polymarket allow users to trade contracts tied to game outcomes, point spreads and player statistics. The dispute centers on whether these products are derivatives subject exclusively to oversight by the U.S. Commodity Futures Trading Commission, or must also comply with state gambling laws. Kentucky separately enacted legislation in April 2026 imposing a 14.25% tax on platform trading fees, above the 9.75% rate on racetrack wagers.

On June 17, 2026, Kentucky Attorney General Russell Coleman sued Kalshi, Polymarket and their partners Coinbase, Robinhood and Webull in Franklin Circuit Court, alleging that they offered sports betting without licenses and failed to provide support for problem gambling. The state described the two platforms as multibillion-dollar businesses. The case puts the Trump administration, which supports exclusive federal oversight, in direct conflict with a Republican-led state government.

India's Promotion and Regulation of Online Gaming Act, 2025 imposes a blanket ban on prediction markets classified as online money games, in which users stake real money and profit based on event outcomes. The legislation was passed and received presidential assent in August 2025, with related rules taking effect on May 1, 2026. Kalshi must comply with the Indian ban even though it is regulated by the U.S. Commodity Futures Trading Commission.

India's Ministry of Electronics and Information Technology, or MeitY, asked VPN providers and intermediaries on April 9 to prevent users from circumventing restrictions to access platforms including Polymarket. Officials confirmed on May 21 that a blocking order had been issued, and Indian users could no longer connect to the platform the following day. MeitY also said it could issue a similar order against Kalshi as early as May 22, requiring internet service providers to cut off access at the network level.

Prediction markets allow users to wager through contracts on the outcomes of elections, sporting contests and other events, but they may be treated as regulated gambling in the Netherlands. The Dutch Gambling Authority (Ksa) blocked Polymarket in February 2026 for operating without a gambling license, highlighting the challenges of cross-border enforcement and investor protection involving decentralized platforms.

An investigation by Dutch financial newspaper FD found that, as of May 5, 2026, users in the Netherlands could still trade prediction contracts through Kalshi, Hyperliquid and Interactive Brokers. Hyperliquid has also recently expanded its local services. The Ksa warned that similar platforms could face penalties, while an April study by London Business School found that only 3% of participants were consistently profitable and nearly 70% lost money.

Kalshi and Polymarket allow users to wager on political and military outcomes through event contracts. Kalshi is regulated by the U.S. Commodity Futures Trading Commission, while Polymarket primarily settles transactions on-chain. The death of Iran’s Supreme Leader Ali Khamenei had implications for the country’s leadership and oil prices, but it also intensified regulatory scrutiny over whether such markets effectively enable trading on assassinations and allow insiders to profit from war.

After Khamenei was killed in U.S.-Israeli airstrikes on February 28, 2026, more than $54 million in Kalshi contracts on whether he would leave office were frozen because of ambiguous terms. In early March, Kalshi decided to reimburse users for their net losses at a cost of about $2.2 million. Comparable contracts on Polymarket recorded more than $58 million in trading. On April 6, seven members of the U.S. House of Representatives wrote to CFTC Chairman Michael Selig, seeking by April 15 an explanation of the agency’s enforcement of insider-trading rules and contracts tied to war.

Kalshi and Polymarket offer event contracts tied to sports, elections and other outcomes. They argue that the Commodity Exchange Act gives the U.S. Commodity Futures Trading Commission, or CFTC, exclusive jurisdiction over such products, while the Nevada Gaming Control Board considers them unlicensed gambling. The dispute will determine whether states can restrict federally regulated prediction markets and could set a nationwide enforcement precedent.

Nevada regulators issued a cease-and-desist order to Kalshi in March 2025. On March 2 and 3, 2026, federal courts remanded the cases involving Polymarket parent Blockratize and Kalshi to state court. On March 19, the Ninth Circuit Court of Appeals declined to stay enforcement, and the following day a state court issued a 14-day temporary restraining order covering contracts tied to sports, elections and entertainment.

Prediction markets allow users to trade on event outcomes. Kalshi is a designated contract market regulated by the US Commodity Futures Trading Commission, while Polymarket conducts transactions through onchain wallets. Because MrBeast's team has access to unreleased video content, the case highlights how entertainment events can also create information asymmetries and has put platform identity checks, surveillance and federal enforcement in the spotlight.

On February 25, 2026, Kalshi said editor Kaptur had traded using nonpublic information between August and September 2025. It ordered him to disgorge $5,397.58 in profits and pay a $15,000 penalty, for a total of $20,397.58, and suspended him for two years. The CFTC issued an enforcement advisory the same day. Separate onchain analysis showed that the probability assigned to Polymarket's winner contract exceeded 94% on February 18, with 147 addresses flagged as highly suspicious.