Kalshi and Polymarket Face Congressional Probe Over Suspicious Trades - FinanceFeeds

House Oversight and Government Reform Committee Chairman James Comer has opened a congressional inquiry into insider trading safeguards at Kalshi and Polymarket, the 2 largest prediction market platforms, after suspicious trades tied to elections and U.S. military action drew fresh scrutiny from lawmakers.

Comer sent letters on Friday to Kalshi CEO Tarek Mansour and Polymarket CEO Shayne Coplan requesting documents and communications by June 5. The inquiry asks both companies to explain how they verify user identities, enforce geographic restrictions, and detect unusual trading activity.

The probe comes as prediction markets move from niche forecasting tools into politically sensitive financial venues. Contracts linked to elections, military decisions, policy changes, and geopolitical events create a direct risk that people with access to non-public government information could trade before the public learns the outcome.

Comer announced the investigation on CNBC's "Squawk Box," citing trades tied to elections and U.S. military action in Venezuela and Iran. He said he wants to assess how widespread insider trading has been and build the case for legislation barring members of Congress, administration officials, and government employees from trading on prediction markets.

The investigation follows several incidents that have raised questions about whether prediction markets can police trades linked to sensitive government information.

In April, a U.S. soldier was arrested for allegedly using inside information about the ouster of former Venezuelan leader Nicolas Maduro to make roughly $400,000 in Polymarket bets. Separately, a New York Times investigation found more than 80 Polymarket users placed suspicious trades, including wagers made hours before U.S. and Israeli strikes on Iran.

Those cases have sharpened a basic regulatory concern: prediction markets can turn confidential government information into tradable financial value. Unlike equities markets, where insider trading law is well developed, event contracts sit in a newer regulatory zone with different platform models, different data trails, and different jurisdictional limits.

Kalshi and Polymarket also operate under different regulatory structures. Kalshi is regulated by the Commodity Futures Trading Commission in New York and does not allow anonymous trading. Polymarket is licensed in Panama and operates its main platform outside U.S. regulatory oversight, while maintaining a separate, limited CFTC-regulated product for domestic users.

Both companies had already moved to tighten controls before Comer's announcement. Kalshi suspended 3 congressional candidates in April after they bet on their own races, violating company rules. Polymarket hired blockchain analytics firm Chainalysis in late April to detect insider trading and market manipulation as part of its push for CFTC approval.

Those steps show that both platforms understand the threat to their business models. Prediction markets depend on trust that prices reflect public information, crowd forecasting, and market liquidity rather than private government access. If users believe event contracts are being dominated by insiders, the product becomes harder to defend to regulators and harder to sell to institutions.

The congressional letters are likely to test whether existing controls are enough. Identity verification, user location checks, trading surveillance, account clustering, blockchain tracing, and escalation procedures are all likely to become core policy questions. The issue is not only whether suspicious trades can be detected after the fact, but whether platforms can stop barred users before they enter sensitive markets.

Comer's inquiry follows pressure from 7 Democratic lawmakers led by Rep. Chris Pappas of New Hampshire, who wrote to the Oversight Committee on May 11 calling for subpoenas of both platforms. Bipartisan legislation targeting prediction market insider trading has also been introduced this Congress, with several bills aimed at restricting trading by people who have access to non-public government information.

For prediction market operators, the immediate risk is not a broad ban on the industry. The sharper risk is a carveout that limits who can trade, what contracts can be listed, and what compliance checks must be in place for politically sensitive markets. That would affect platform growth, onboarding, market liquidity, and the cost of operating in the U.S.

For institutional users, the probe may cut both ways. Stronger rules could reduce legal uncertainty and make regulated prediction markets easier to use for hedging and forecasting. But if Congress treats political contracts as too exposed to insider trading, platforms may face tighter listing standards for elections, defense, foreign policy, and government action.

The inquiry marks another step in the normalization of prediction markets as financial infrastructure. Kalshi and Polymarket are no longer being judged only by trading volume or forecast accuracy. They are now being tested on market integrity, surveillance, and whether event contracts can exist without giving public officials a new venue to monetize confidential information.