Comer Launches Probe Into Insider Trading on Kalshi, Polymarket
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Fazen Markets Editorial Desk
Collective editorial team · methodology
prediction-marketsinsider-trading
Fazen Markets Editorial Desk
Collective editorial team · methodology
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House Oversight and Accountability Committee Chairman James Comer initiated a formal congressional investigation into prediction market platforms Kalsh and Polymarket on May 22, 2026. The probe focuses on potential vulnerabilities to insider trading and market manipulation on the platforms, which allow users to trade contracts on political and corporate event outcomes. The move represents the most significant regulatory threat to the rapidly growing prediction market sector to date.
Prediction markets have grown from niche platforms to handling substantial volumes. Kalsh, a CFTC-regulated exchange, reported over $150 million in contracts traded on the 2024 U.S. presidential election alone. Unregulated platforms like Polymarket, which operates offshore, have seen even larger volumes on some geopolitical events.
The sector faces increased scrutiny as contract sizes grow and institutional participation rises. The last major political event contract on Kalsh saw maximum payouts exceeding $5 million for a single outcome. This financial scale has attracted attention from lawmakers concerned about the integrity of markets tied to sensitive information.
The probe follows a series of high-profile market moves that preceded public announcements. Several contracts on corporate mergers and FDA approvals have shown unusual volume and price action hours before official news releases.
Kalsh's trading volume surged to $12.7 billion in 2025, up 240% from 2024 levels. Polymarket, which doesn't publish official figures, is estimated by blockchain analysts to have processed over $18 billion in volume during the same period.
The maximum contract size on Kalsh has increased from $25,000 to $250,000 since the platform received CFTC approval in 2022. Polymarket maintains no official limits, with some individual positions exceeding $1 million based on blockchain wallet analysis.
Corporate event contracts have seen particularly rapid growth. Trading volume on earnings-related contracts increased 170% year-over-year in Q1 2026 versus Q1 2025. M&A speculation contracts grew 210% during the same period.
Regulatory scrutiny has intensified globally. The UK's Financial Conduct Authority fined a prediction market operator £600,000 in November 2025 for compliance failures. Germany's BaFin issued warnings to three platforms in February 2026 regarding unauthorized financial betting.
Traditional financial information providers face both competitive pressure and potential opportunity from this probe. Bloomberg Terminal and Reuters terminals both added prediction market data feeds in 2025, viewing them as alternative data sources for event probability assessment.
Event-driven hedge funds that use prediction markets as sentiment indicators may need to adjust their models if regulatory action reduces market liquidity. Several quantitative funds have incorporated prediction market odds into their trading algorithms for binary event outcomes.
The investigation could benefit established betting and trading platforms with strong compliance frameworks. DraftKings and FanDuel both operate regulated sports betting platforms that could expand into predictive contracts if regulatory clarity improves.
Some legal scholars question whether insider trading laws apply to event contracts in the same way they apply to securities. The legal distinction between material non-public information about corporate events versus political developments remains untested in court.
The committee has requested documents from both platforms by June 15, 2026. Initial hearings are tentatively scheduled for late July 2026, coinciding with the congressional session after the summer recess.
The CFTC's reauthorization process in 2027 will likely include provisions addressing prediction market oversight. Key senators on the Agriculture Committee have indicated interest in expanding the commission's authority over event contracts.
Platform responses will be critical. Kalsh may advocate for expanded regulatory clarity to distinguish itself from offshore operators. Polymarket may need to either seek regulatory approval or restructure its operations to avoid U.S. jurisdiction.
Market participants should monitor volume patterns on politically sensitive contracts, particularly those related to pending legislation or regulatory decisions. Unusual activity around these contracts could draw additional regulatory attention.
Prediction markets allow participants to buy and sell contracts tied to the outcome of future events. Prices reflect the market's collective assessment of event probability. A contract trading at $0.70 indicates a 70% perceived chance of that outcome occurring. Settlements are based on verifiable real-world results, creating financial incentives for accurate forecasting.
Kalsh operates as a regulated exchange under CFTC oversight with U.S. banking partnerships and identity verification requirements. Polymarket operates from outside the United States using cryptocurrency for deposits and settlements without formal identity verification for smaller accounts. This fundamental regulatory difference affects contract enforcement, tax reporting, and legal protections for participants on each platform.
The IRS treats prediction market winnings as gambling income subject to ordinary income tax rates. Professional traders may deduct losses only to the extent of winnings. Regulatory uncertainty complicates tax treatment, particularly for offshore platforms where reporting requirements may be unclear. The probe may clarify tax obligations for U.S. participants using international platforms.
Congressional scrutiny threatens prediction markets' growth until regulatory boundaries are clearly defined.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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