CFTC Predicts Trouble For Those That Trade With Inside Information

Overview

The Commodity Futures Trading Commission’s (the “CFTC”) Division of Enforcement (the “Division”) issued an advisory following public release of two enforcement cases involving insider trading and the misuse of nonpublic information and fraud with respect to certain prediction markets, also known as event contracts, traded on KalshiEX (“Kalshi”), one of twenty-four Designated Contract Markets (“DCMs”).Trades on the prediction markets depend on the outcome of certain events such as sports contests or political elections, among other things, and are regulated by the CFTC as “swaps” under Section 1a(47)(A) under the Commodity Exchange Act (the “CEA” or “Act”).[1]

Explosive Growth of Prediction Markets

According to blockchain security firm CertiK, prediction market trading quadrupled in 2025 from $15.8 billion to approximately $63.5 billion. Trading has consolidated around Kalshi, Polymarket and Opinion.[2]

Multiple Regulators May Have Jurisdiction

The CFTC’s Chairman, Michael Selig, formerly chief counsel of the SEC’s Crypto Task Force and senior advisor to SEC Chairman Atkins, is committed to working with the SEC to harmonize regulations and eliminate gaps in regulations between the SEC and CFTC. In testimony before the Senate Banking Committee, Chairman Atkins indicated that certain aspects of the prediction markets should potentially be overseen by both agencies. Jay Clayton, U.S. Attorney for the Southern District of New York, has also indicated that participants in the prediction markets are subject to criminal antifraud laws.

The CFTC Sharpens Its Focus

Chairman Selig has chartered a new course with respect to event contracts by directing his staff to: (i) work with the SEC to draw clearer lines between commodity and security options and swaps, (ii) draft event contract rules and (iii) reassess the CFTC’s participation in pending federal litigation. The CFTC filed an amicus brief in the U.S. Circuit Court of Appeals for the Ninth Circuit confirming it exclusive jurisdiction over the U.S. commodity derivatives markets, including event contracts. Chairman Selig also gave a wide-ranging interview on the history and role of the CFTC, the breadth of the definition of “commodity interest” in general and prediction mark regulation in particular (including whether or not Cardi B performed at half-time during the Super Bowl). The full interview on Bloomberg’s Odd Lots is available here. 

CFTC Enforcement Actions on Kalshi Trades

The CFTC enforcement cases include the following:

• In May 2025, social media posts contained videos that appeared to show a political candidate trading on his own candidacy on Kalshi. Kalshi’s compliance team[3] contacted the candidate who acknowledged that he knew these trades were improper and violated Kalshi’s rules, which prohibit trading in a contract over which the trader has direct or indirect influence over the outcome. Kalshi imposed a $2,246.36 financial penalty and a 5-year suspension from access to the exchange. The trader potentially violated Section 6(c)(1) of the CEA, and CFTC Regulation 180.1(a)(1) and (3) for use of a manipulative scheme or artifice to defraud, or engaging or attempting to engage in an act, practice or course of business that operates as a fraud on any other person.
• In August and September 2025, an individual[4] traded a prediction market related to a YouTube channel while having an employment relationship or other formal affiliation with the subject of the contract, through which the trader likely had access to material non-public information (“MNPI”) related to his trades, in violation of exchange rules. Upon investigating the successful trades and the trader, Kalshi discovered that the trader was an editor for a YouTube channel who likely had advance knowledge of the contents of the channel’s videos prior to public posting. Kalshi concluded there was reasonable belief that the trades were based on MNPI misappropriated in violation of a pre-existing duty and imposed a $20,397.58 financial penalty and a 2-year suspension from access to the exchange. The trader potentially violated prohibitions on misappropriation of confidential information in breach of a pre-existing duty of trust and confidence to the source of the information (“insider trading”) pursuant to Section 6(c)(1) of the Act, and Regulation 180.1(a)(1) and (3).

While Kalshi’s internal enforcement program handled these matters, under the Act, the CFTC has full authority to police illegal trading practices occurring on any DCM, including those described above related to prediction markets. Without limitation, these practices include:

• Misappropriation of confidential information in breach of a pre-existing duty of trust and confidence to the source of the information pursuant to Section 6(c)(1) of the Act, and Regulation 180.1(a)(1) and (3); see, e.g., CFTC v. Clark, Civil Action No. 4:22-cv-00365 (S.D. Tex., Jan. 29, 2026 consent order); In re Webb, et al., CFTC Docket No. 21-09 (June 14, 2021 admin. order).
• Pre-arranged, noncompetitive trading and wash sales, under Section 4c(a)(1) and (2)(A) of the Act, and Regulation 1.38(a); see, e.g., In re Khorrami, et al., CFTC Docket No. 20-15 (May 7, 2020 admin. order); CFTC v. Singhal, et al., Civil Action No. 1:12-cv-00138 (N.D. Ill., Nov. 28, 2012 consent order).
• Other prohibited trading practices including disruptive trading pursuant to Section 4c(a)(5); see, e.g., In re Mirae Asset Daewoo Co. Ltd. , CFTC Docket No. 20-11 (Jan. 13, 2020 admin. order).
• Fraud and manipulation under various sections of the Act; see, e.g., In re Dairy Farmers of America, Inc., et al., CFTC Docket No. 09-02 (Dec. 16, 2008 admin. order).

DCMs have an independent duty pursuant to the core principles of the Act to maintain audit trails, conduct surveillance, and enforce rules against prohibited practices.[5] In appropriate cases, the Division will also investigate and prosecute violations.

Conclusion

While much of the law of insider trading has been developed by the SEC using Rule 10b5 in civil cases involving the purchase or sale of securities, the CFTC has CEA Section 6(c)(1) and Regulation 180.1(a)(1) and (3) patterned after Rule 10b5 for insider trading involving commodities and other assets over which the CFTC has jurisdiction. If the trade involves a security then the SEC will be able to prosecute. Last but not least, the Department of Justice may bring companion criminal cases using a panoply of anti fraud statutes.  

[1] See the CFTC’s amicus brief for a more complete explanation of the CFTC’s jurisdiction of event contracts as swaps and binary options which is available here.

[2] The CertiK report is available here.

[3] KalshiNews posted a press release on the two insider trading cases and this Disciplinary Release.

[4] Kalshi’s Disciplinary Release is available here.

[5] See Section 5(d) of the Act (Core Principles for Contract Markets).