The US military could soon see a new regulation prohibiting service members from engaging in prediction market bets, as outlined in a draft defense policy bill. This proposal follows a high-profile incident involving a US special forces soldier accused of using classified information to profit from bets related to the capture of Nicolás Maduro.
Proposed Regulations and Penalties
The draft bill, released by the House Armed Services Committee, mandates Defense Secretary Pete Hegseth to establish regulations preventing armed forces members and Pentagon civilian employees from trading on prediction markets if they possess or could reasonably obtain nonpublic information. It also requires the development of a range of punishments for those who violate these rules.
Prediction markets, such as Kalshi and Polymarket, have gained significant traction recently. Although regulated by the federal government as commodity futures, many lawmakers argue that existing rules are insufficient for this rapidly expanding industry. Currently, US-based prediction sites are prohibited from offering markets on war-related events, but offshore platforms like Polymarket provide accessible war-related markets to Americans using virtual private networks.
Insider Trading Concerns
The case involving the soldier, who allegedly made $400,000 on Polymarket, marks the first known federal prosecution for insider trading on prediction markets. The soldier has pleaded not guilty, and Polymarket has stated it referred the matter to the Department of Justice after identifying the use of classified information.
Eugene Fidell, a Coast Guard veteran and military law professor at Yale, suggests that the bill implies potential criminal punishment under military law for violators. The Uniform Code of Military Justice already considers disobeying orders or regulations a federal crime. Fidell advocates for a comprehensive federal strategy to address prediction market insider trading, rather than targeting service members specifically.
Military and Legal Perspectives
Franklin Rosenblatt, a retired Army lawyer and law professor, believes that military regulations could help clarify prohibited behaviors in prediction markets. He notes that improper betting could be prosecuted under existing legal mechanisms aimed at maintaining discipline within the ranks.
Critics have raised concerns about suspiciously timed trades on prediction sites related to geopolitical events, such as the Maduro operation and US-Israel strikes on Iran. The Commodity Futures Trading Commission, responsible for regulating prediction markets, has committed to combating insider trading.
Recent actions, including a case against a Google engineer for suspicious bets, indicate that the Trump administration is taking steps to enforce regulations. However, there are bipartisan concerns about the CFTC’s capacity to effectively oversee these markets due to limited resources.
Similar measures have been implemented in other government sectors. The Senate has banned its members from using prediction markets, and some House members have prohibited their staff from engaging with these platforms. Additionally, Democratic governors in California and Illinois have issued executive orders banning state employees from using insider information on prediction sites.
Original reporting: KRDO (Colorado Springs metro) — read the source article.
