WASHINGTON, March 5 - Two Democratic lawmakers are collaborating on proposed legislation intended to curtail certain activities on prediction market platforms after a spate of well-timed bets surrounding U.S.-Israeli air strikes in Iran prompted questions about the legality and ethics of those trades.
Representative Mike Levin and Senator Chris Murphy are working together on the measure, which Levin said is a direct response to recent events in which market activity appeared to track military developments. While Levin acknowledged the bill may not become law in the near term, he said the proposal amplifies scrutiny of platforms that host event-based contracts and puts pressure on companies such as Polymarket and Kalshi.
Levin described his concerns bluntly:
"Chris Murphy and I are working on this. It’s unbelievably clear to me that if anyone is using prior knowledge of military action for financial gain that should be absolutely illegal."
The congressman argued that existing law already addresses some types of event contracts. The Commodity Exchange Act bars event contracts that are deemed "contrary to the public interest," and explicitly includes categories such as war, terrorism, or assassination. Levin said, however, that the current statute affords prediction markets too much latitude.
Recent platform responses illustrate growing public and political discomfort. Polymarket removed markets on the likelihood of a nuclear explosion anywhere in the world after facing online backlash. Levin said that betting on conflict and human casualties is unacceptable, adding that other Democratic lawmakers share his views and that he hopes to assemble a coalition in support of legislative action.
Concerns have been heightened by several high-profile trading outcomes. An analytics firm flagged that six accounts collected roughly $1.2 million profit from Polymarket wagers on the ouster of Iran's Supreme Leader Khamenei just hours before he was killed in the air strikes. Separately, last month a mystery trader posted about $410,000 in gains from a bet on the ouster of Venezuelan President Nicolas Maduro, prompting criticism from six Democratic senators.
Responding on social media, Levin and Murphy characterized the Iran-related trades as suggestive of insider profit from wartime events. Murphy added that such trades should not be legal and said he planned to introduce legislation "ASAP."
Requests for comment were not met with immediate responses from spokespeople for Murphy and for Polymarket. Kalshi's spokesperson said the platform prohibits and enforces rules against insider trading and noted, "We also don’t list markets directly tied to death." Polymarket, which operates primarily overseas, has maintained that prediction markets harness the wisdom of crowds to produce accurate, unbiased forecasts.
Although the proposed legislative push is not expected to reach the finish line quickly, it signals mounting regulatory and reputational pressure on prediction market operators and raises broader questions about how such platforms should be governed when markets intersect with national security events.
Key Points
- Democratic lawmakers Representative Mike Levin and Senator Chris Murphy are drafting legislation to restrict prediction market activity tied to military actions.
- The move follows profitable, well-timed bets on Polymarket that coincided with recent U.S.-Israeli air strikes, prompting concerns about insider trading and the ethics of wagering on conflict.
- The effort increases scrutiny on platforms such as Polymarket and Kalshi and touches on legal standards under the Commodity Exchange Act.
Risks and Uncertainties
- Legal uncertainty - Existing law bars certain event contracts but may give prediction markets latitude, leaving unclear whether current statutes are sufficient to address alleged insider-driven trades.
- Operational and reputational risk for platforms - Polymarket and Kalshi face intensified regulatory and public scrutiny, which could affect their operations or market listings.
- National security and information disclosure concerns - Bets tied to military actions raise questions about incentives to disclose classified information or otherwise influence events, creating potential risks for defense-related institutions.