U.S. lawmakers have launched an investigation into prediction market platforms Polymarket and Kalshi due to worries that government insiders might be exploiting non-public information to profit from bets on elections, wars, and significant political events. House Oversight Committee Chair James Comer confirmed the probe, stating the committee is examining whether government insiders are using confidential information to gain from these markets. This investigation comes as prediction markets have seen substantial growth in popularity among crypto and retail traders.
Comer has sent formal letters to Polymarket CEO Shayne Coplan and Kalshi CEO Tarek Mansour, demanding detailed information on how their platforms monitor suspicious activity and prevent insider trading. The requests included details on user identity verification, enforcement of geographic restrictions, detection of unusual trading patterns, and handling of both domestic and international users. The companies were instructed to respond by June 5, with Comer emphasizing that internal trading records are crucial for identifying potential misuse of confidential information by government officials.
Prediction markets allow users to trade on the outcomes of future events, ranging from elections and sports to interest rates and geopolitical decisions. The sector experienced a boom during recent U.S. elections and major geopolitical events, attracting millions of dollars into high-profile prediction contracts. However, this rapid growth has escalated concerns among regulators and lawmakers. Comer warned that members of Congress, government employees, or officials connected to the presidential administration could potentially leverage insider information unavailable to the public.
Lawmakers are now considering new legislation to either limit or completely ban government officials from participating in prediction markets. This investigation adds to existing regulatory scrutiny of the industry, which operates in a complex legal landscape involving gambling laws, financial regulations, commodities oversight, and crypto trading rules.
Separately, Michele Spagnuolo, a Google software engineer, has been accused of using confidential company data to make over $1.2 million in trading profits on Polymarket. Spagnuolo, trading under the alias "AlphaRaccoon," allegedly wagered $2,754,092 on Google's "Year in Search" data in late 2025 by accessing internal software. He faces charges of wire fraud, money laundering, and commodities fraud, with a separate civil enforcement action filed by the U.S. Commodity Futures Trading Commission (CFTC). The FBI and U.S. Attorney Jay Clayton highlighted this as a new-age insider trading case, compromising market integrity. There are also concerns about $45 million in suspicious trades related to Iran-focused contracts on Polymarket, with analytics firm Polysights reporting nine interconnected anonymous wallets achieving a 98% win rate on Iran-related bets, collectively earning $2.4 million. Polymarket has referred nearly 100 wallets to law enforcement in response to these allegations.
