Key facts
- Kalshi and StarCompliance have launched a new platform to monitor employee activity on prediction markets.
- The platform aims to detect potential insider trading by analyzing transaction volume, patterns, and work hours.
- US states and federal regulators are in conflict over the oversight of event-based contracts.
- At least 11 US states have taken legal or regulatory action against prediction market platforms.
- A US Army Master Sgt. faces trial for allegedly using non-public information to profit on a prediction market.
Prediction market operator Kalshi has partnered with compliance software provider StarCompliance to introduce a monitoring platform aimed at overseeing employee activity on prediction markets. This initiative comes as the sector faces heightened scrutiny regarding insider trading and the use of non-public information.
The new system is designed to identify suspicious employee actions by analyzing transaction volume, trading patterns, market categories, and work-hour activity. It will also provide firms with a centralized method for managing investigations and audit records related to prediction market exposure, encompassing both on-chain and off-chain environments.
This development follows closely after a federal judge scheduled a December trial for US Army Master Sgt. Gannon Ken Van Dyke, who is accused of leveraging non-public information about a military operation to gain over $400,000 on the prediction market platform Polymarket. Van Dyke has pleaded not guilty.
StarCompliance indicated that the product is intended to mitigate risks associated with material non-public information, as employees at financial institutions might exploit sensitive business or market intelligence for trading event contracts. The new capability integrates prediction market trading via Kalshi into StarCompliance's existing employee compliance platform, which already monitors traditional securities and digital asset activities.
Prediction markets are currently under increasing regulatory and legislative pressure in the United States. At least 11 states have initiated legal or regulatory actions against platforms like Kalshi and Polymarket. The core of the dispute centers on whether event contracts should be classified under state gambling laws or as federally regulated derivatives overseen by the CFTC, leading to a complex landscape of lawsuits, cease-and-desist orders, and proposed legislation.
Nevada was the first state to temporarily halt Kalshi's operations, while Arizona accused the company of running an illegal gambling business. In response, prediction market operators and the CFTC have contested these actions. Kalshi sued Minnesota after the state implemented a ban on prediction markets, and the CFTC joined Kalshi in challenging Rhode Island officials over event contract regulation. The CFTC has also sued New Mexico officials, marking the eighth state targeted by the agency in its efforts to counter state-level restrictions on these platforms.
Representative James Comer recently requested information from the CEOs of Kalshi and Polymarket regarding their responses to insider trading concerns, prompted by trades that appeared suspiciously timed in relation to US military actions against Iran.
Industry experts anticipate that the jurisdictional battle between federal regulators and state authorities will intensify and potentially reach the US Supreme Court. The Trump administration has reportedly supported the CFTC's stance on regulating prediction markets. Lawmakers are also deliberating on the types of event contracts that should be permissible, particularly those linked to politics and war, with insider trading concerns expected to remain a key focus for future legislation and oversight.