Discussion

Kalshi CEO expects US DOJ to prosecute insider trading cases

mlmonkey: I'm guessing it's Trump insiders who are busy making bank on inside info. Some of them just happen to be big investors in Polymarket and Kalshi. There's no way they are getting investigated, let alone prosecuted, by this DOJ.At most some low-level flunkie will get named and slapped on the wrist.

slg: “If you commit insider trading on Kalshi, that can and will at some point be a federal crime. It is a federal crime, I actually do expect the DOJ to prosecute some of these cases”. I'm guessing that “some point” is sometime after Jan 20th 2029.

mlmonkey: You give the Dems too much credit.

georgemcbay: Ok, but isn't the idea that prediction markets surface private knowledge a big part of the defense as to why they shouldn't be treated as illegal gambling?So like, which is it, is insider trading expected, or are these just gambling sites that should be illegal in many jurisdictions?

fontain: Prediction markets don’t need to surface private knowledge, they can surface sophisticated interpretations of public knowledge. They are certainly gambling if you’re an unsophisticated rube (which is most of the users).

alephnerd: > isn't the idea that prediction markets surface private knowledge a big part of the defense as to why they shouldn't be treated as illegal gamblingNo. Their defense is that they are gamified futures contracts and hence should fall under CFTC regulation.The CFTC also cracks down on insider trading, but it took time for them to catch up with prediction markets.It is now a priority [0][0] - https://www.lw.com/en/insights/new-cftc-enforcement-director...

ssharp: On the Polymarket homepage right now, one of the featured markets is whether or not Bitcoin will be up or down over the next 5 minutes. It's hard to justify that as anything more than illegal gambling.I find prediction markets to be interesting on two fronts:1) They like a really good way to determine the probability of something happening, which is interesting for events like elections2) It provides an avenue for smart bettors to take advantage and sharpen their skill, whereas they get severely limited or banned from traditional sports booksHowever, it seems like all incentive structures for the markets and consumer behavior will steer these things to degenerate gambling.

Karrot_Kream: Polymarket is not CFTC regulated, it's considered illegal in the US. CFTC does not allow betting on securities prices. Cryptocurrency is a bit of a gray area because it's not considered a registered security.N.B. it becomes a bit frustrating to talk about financial and regulatory things on this site because the level of knowledge is generally "I read some articles on social media about markets" level.

curt15: How does one "interpret" public knowledge to time bets so accurately right before Trump's announcements?

Karrot_Kream: I mean that's why insiders are being investigated right?But sometimes the answer is more difficult than it seems. Is a mid level military officer an insider? If you overheard a conversation on Capitol Hill are you an insider?

Karrot_Kream: Prediction Markets, unlike many gambling sites, create a marketplace for odds. There's no house taking positions like in certain casinos or on DraftKings. Market makers offer shares in Yes and No while bettors buy and sell these odds to each other or to market makers.

pwillia7: when have we ever defined gaming/gambling as 'a thing where the house takes a rake' ? I don't understand this argument and it always feels disingenuous when brought up.

Onavo: Legally, they have to disclose all their probabilities (under most regulatory regimes).

SpaceManNabs: Isn't the entire point of prediction markets to surface insider trading as a feature and not a bug?Short, casual reads- https://jamaalglenn.substack.com/p/prediction-markets-were-d... - https://money.com/prediction-markets-insider-trading/More academic?- https://mason.gmu.edu/~rhanson/insiderbet.pdf AND - https://www.youtube.com/watch?v=4yZKGbq1YmADiscussion on possible solutions that references the academic view- https://www.dopaminemarkets.com/p/how-to-solve-insider-tradi...

wmf: This is a case where normal people's ideas of fairness may never agree with the experts.

tptacek: This issue reveals the gap between the prediction market premise and what these things actually are, which is: unregulated prop gambling venues.If things like Kalshi and Polymarket are prediction markets, then, at least as far as the intrinsic concerns of the market itself are concerned, insider trading is a good thing; literally part of the point.If they are instead how they function today, then insider trading is a game-breaking fairness issue, like having a device to read your opponents cards in a poker game, and then they're a real problem.You can tell what these businesses think their platforms are for by how they handle these issues.

chao-: If all one cares about is the accuracy of predictions (i.e. setting aside value judgements vis-a-vis society or fairness), it does seem like "insider trading" should make prediction markets more accurate.

notahacker: It makes them more accurate at the time the insider places the bet. But to maximise profit, they are incentivised to misdirect before they place the bet (and worse still from society's perspective, are incentivised to take counter-intuitive or downright harmful actions to profit at the expense of people who bet on the view that it made no sense for them to do that)

lowkey_: > “If you commit insider trading on Kalshi, that can and will at some point be a federal crime. It is a federal crime,”Am I misunderstanding? It seems like two different statements he always conflates.If it becomes a federal crime at some point, it will become illegal from that point — you can't prosecute people for acts committed before they were crimes.The only way that this could be a federal crime right now is if the government starts prosecuting it under existing laws without any changes. I don't see that as likely.

echelon: IANAL, but my understanding is that they can make it a retroactive crime or clarify existing laws in ways that include prediction markets.Don't assume safety.Edit - was curious:https://en.wikipedia.org/wiki/Ex_post_facto_lawSo maybe not?I'd love a judicial scholar's input.

mcmcmc: [delayed]

Karrot_Kream: Er it's not. Gambling where the house takes a cut is considered a form of commercial gambling and is often made illegal or has stipulations applied to it.If you're asking about why prediction markets fall under the CFTC, this is actively evolving but generally prediction markets are considered to be under the CFTC because they can be used to hedge against events.For example if you're trying to do business in Oman but you're worried about Iran tensions spilling over, you could take a Yes position on an Iran conflict bet as a hedge. You may lose business but can make some of it up in the hedge."Gambling" the concept legally is very complicated and has a lot to be understood, so I'd suggest doing some searching or LLM asking if you want an intro on philosophical definitions or the legal landscape.

teeklp: This is gibberish.

asdfman123: Translation: "it's not our problem"

bowmessage: Agreed. So who are the outsider chumps taking the other ends of these bets? At this point, it doesn’t make sense to participate unless you’re an insider.

wasabi991011: You can be an outsider with expertise, in which case you can still beat the non-expert outsiders.So now who are the non-expert outsiders and why would they bet? Outsiders who think they are experts but are wrong.

RobRivera: Courts have ruled that these markets are regulated under the CFTC. So they are regulated. Now as to whether it is properly regulated, thats a different matter.

bradleybuda: There was a downward trend during the Biden years [1] but "both sides same" is not even a little bit true.[1] https://www.citizen.org/article/biden-doj-2024-corporate-cri...

trinsic2: Ok calling this out. Both parties are involved in crimes. An example is both party's are involved in supporting Israel's fascist objectives.Just because there is less reports of corruption in the past by dems doesn't change anything. Corruption extend beyond parties, its not a political problem. Its a human problem.I don't expect to see much change when the dems come back into power, albeit, it be less apparent and of a different nature, I.E more indiscriminate surveillance and less racial profiling ..There is some kind of cultural thing going on that transcends the party's IMHO that's keeping this problem going.

Sol-: I understand he wants to deflect liability from his platform, but I guess I have to concede that it seems like a legitimate defense. We allow the stock market to exist even though insider trading can happen and it's (I think?) not Nasdaq's or NYSE's responsibility to pursue that. We have a legal system for that.I think there is still the debate to be had whether prediction market enable too much criminal activity and insider trading compared to traditional stock markets and therefore need to be limited for pragmatic reasons (i.e. the legal system can't keep up), but that's a different discussion.