Members of the US military might soon face restrictions on participating in prediction markets if a draft defense policy bill is approved by Congress. This proposal arises after a notable incident where a US special forces soldier was accused of using classified information to place bets related to the capture of Nicolás Maduro.
Proposed Regulations and Potential Impact
The draft bill, released by the House Armed Services Committee, mandates Defense Secretary Pete Hegseth to establish regulations that would prevent armed forces and Pentagon civilian employees from trading on prediction markets if they possess or could reasonably obtain relevant nonpublic information. The bill also calls for a range of punishments for those who violate these rules.
Prediction markets, such as Kalshi and Polymarket, have gained significant popularity, functioning similarly to commodity futures and regulated by the federal government. However, many lawmakers argue that current regulations have not kept pace with the industry’s rapid growth.
Currently, federal law prohibits US-based prediction sites from offering markets on war-related events. However, Polymarket operates an offshore site accessible to Americans via virtual private networks, offering numerous war-related markets.
Legal and Ethical Considerations
The case involving the special forces soldier, who allegedly made $400,000 on Polymarket, marked the first known federal prosecution for insider trading on prediction markets. The soldier has pleaded not guilty, and Polymarket has stated that it referred the matter to the Department of Justice after identifying a user trading on classified information.
Eugene Fidell, a Coast Guard veteran and military law expert, suggests that the bill could lead to criminal punishment under military law for violators, as disobeying orders or regulations can be prosecuted as a federal crime under the Uniform Code of Military Justice.
While insider trading is already illegal under federal law for those with a duty to keep information private, the draft bill expands this framework to include trading on nonpublic information, even if unclassified. This could encompass betting on the outcome of major defense contracts before public announcements.
Broader Implications
Franklin Rosenblatt, a retired Army lawyer, believes that military regulations could benefit from more specific guidelines on prohibited behavior in prediction markets. Concerns have been raised about suspiciously timed trades on prediction sites around geopolitical events, such as the Maduro operation and US-Israel strikes on Iran.
The Commodity Futures Trading Commission, responsible for regulating prediction markets, has pledged to address insider trading issues. Recent cases, including one against a Google engineer, indicate that the Trump administration is taking action against such practices. However, there are bipartisan concerns about the CFTC’s capacity to effectively police these markets due to limited resources.
Similar restrictions have been implemented elsewhere, with the Senate banning members from using prediction markets and some House members prohibiting their staff from using these platforms. Additionally, the governors of California and Illinois have issued executive orders banning state employees from using insider information on prediction sites.
Original reporting: KEYT (Ventura/Santa Barbara) — read the source article.
