The Commodity Futures Trading Commission (CFTC) has told Kalshi that contract markets involving crime are prohibited after the platform briefly offered predictions related to Luigi Mangione. Mangione is the suspected gunman in the December 4 killing of UnitedHealthcare CEO Brian Thompson.
While prediction exchange platforms are gaining popularity due to their variety of topics, one subject has clearly been established as off limits: contracts involving crime.
Mangione contracts violate CFTC regulations
Prediction exchanges like Kalshi allow users to put money (or predict) the outcome of nearly anything, such as elections, the weather, and Bitcoin’s price. Unsurprisingly, given the popularity of the case, Kalshi put up several contracts regarding Mangione on December 11. They included whether he would be extradited to New York, plead guilty and whether any family members had UnitedHealthcare insurance. Two days later, Kalshi removed the contracts after it said it received a notice from regulators.
The CFTC, which oversees online prediction exchanges and regulates derivatives like futures, swaps, and options, has the authority to review such contracts. While prediction platforms can launch contracts on trending topics with just a day’s notice, the CFTC often lacks time to conduct thorough reviews. Even so, the CFTC can pause them if it deems they violate its rules. In the Mangione predictions’ case, they were not allowed by CFTC’s Regulation 40.11, which prohibits:
Event contracts that reference terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law, or that involves, relates to, or references an activity that is similar to any of those activities and that the CFTC determines by rule or regulation to be contrary to the public interest.
Offshore site Polymarket still offers Mangione predictions
While US companies like Kalshi and PredictIt adhere to US laws and regulations, offshore exchanges, including Polymarket, do not, as they operate outside US jurisdiction. Although Polymarket says it hasn’t accepted US users since 2022 as part of a settlement with US authorities, some reports suggest users can bypass the ban by using a VPN. That prompted an investigation by the US Justice Department. In November federal authorities raided the home of Polymarket CEO Shayne Coplan.
Polymarket has capitalized on the Mangione controversy and still offers several predictions at the time of writing. They include his sexual orientation, whether his parents have UnitedHealthcare policy, and whether he was motivated by denied claims. Users have wagered over $186,000 on the latter. Meanwhile, a now-closed prediction of whether Mangione’s YouTube channel is real has generated over $441,000 in wagers.
Prediction exchanges are gaining popularity
Prediction exchanges have surged in popularity, particularly during the recent presidential elections. Some reports suggest that Polymarket generated over $3.6 billion in contracts. Meanwhile Kalshi had over $100 million in contracts in the US. Unsurprisingly, many companies have noticed that and have jumped on the prediction markets train. Others might be looking to do so in the future.
The commission-free stock-trading app Robinhood was among those that got into the US presidential elections markets. Meanwhile, crypto trading platform Crypto.com recently announced plans to launch a sports event trading product. The platform claims users can ” participate and trade their own prediction on the outcome of sports events, including the Super Bowl.” However, the product could face pushback from lawmakers and legal sports betting operators on whether it is a form of sports betting.
DraftKings, one of the largest US sports betting operators, may also enter the political predictions market before the next election. The company’s CEO, Jason Robins, recently acknowledged the potential impact of political predictions on a conference call as a new revenue stream. Entering the sector could be a welcome addition for operators like DraftKings looking for new revenue avenues as the expansion of legalized sports betting slows. Major states like California and Texas show no signs of legalizing sports betting, leaving limited opportunities.
CFTC’s rocky relationship with prediction exchanges
While enjoying popularity, prediction exchanges are also receiving considerable criticism, including from some lawmakers who want political predictions banned. The CFTC has also had a long battle with the platforms.
PredictIt has been operating in the US since 2014 under a no-action letter from the CFTC. However, in 2022, the regulator notified PredictIt to cease operations. The platform responded with a lawsuit, which is still ongoing. In the meantime, the Fifth Circuit Court of Appeals prevented the CFTC from shutting down the exchange. The same year, the CFTC also prohibited Kalshi from offering political predictions. Kalshi responded with a lawsuit stating the regulator does not have the power to prevent it from providing political contracts.
This year, the CFTC was able to prevent the platform from offering election products, citing the impact on election integrity. However, a federal appeals court allowed the companies to resume trading in October. While the battle is far from over, many expect the incoming Trump presidency to be more friendly towards the platforms. Some reports suggest that former CFTC Commissioner Brian Quintenz, who previously served on Kalshi’s board, is a leading candidate to lead the regulator.
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