Governors in New York and Illinois issued executive orders prohibiting insider trading by state employees using prediction market platforms.
Key Takeaways
- Several instances of suspicious trades on prediction markets have highlighted the potential for insider trading by government employees.
- Last month, California banned prediction market trading by state appointees.
- Illinois and N.Y. now prohibits state employees from using non-public information to trade or facilitate trades on prediction markets.
Illinois Governor JB Pritzker issued an executive order on Tuesday, banning state employees from insider trading using prediction markets.
“Prediction markets have rapidly grown into a space where people can bet on real-world events without any oversight, including events people can influence,” said Governor JB Pritzker.
“This opens the door to insider trading and abuse of confidential information. While the Trump Administration continues to be riddled with stories of appointees looking to make a profit, Illinois is stepping up to ensure those who are serving the public not their own personal financial gain.”
The executive order, which went into effect immediately, prohibits any Illinois state employee, officer, appointee or board member of any state agency from:
- Using non-public information obtained through their official position to participate in prediction markets or event-based contracts, regardless of whether the individual ultimately profits.
- Sharing or using non-public information to assist any other person in participating in prediction markets, regardless of relationship, affiliation, or whether that person profits.
Illinois isn’t the only state restricting the use of prediction markets by government employees. In March, California Governor Gavin Newsom also issued an executive order banning insider trading using prediction markets. As a result, California state appointees are prohibited from using nonpublic information to purchase contracts on prediction markets. Officials are also prohibited from helping others make money off of event contracts using insider information.
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New York follows suit
New York Governor Kathy Hochul also signed an executive order banning state employees from insider trading on prediction markets on Wednesday.
“Getting rich by betting on inside information is corruption, plain and simple,” Governor Hochul said. “Our actions will ensure that public servants work for the people they represent, not their own personal enrichment.
“While Donald Trump and DC Republicans turn a blind eye to the ethical Wild West they’ve created, New York is stepping up to lead by example and stamp out insider trading.”
Concerns about the use of insider trading on real-world event contracts made prediction markets news after a number of suspicious trades were thought to be linked to U.S. government policy actions. For instance, one trader on the prediction market site Polymarket made $400,000 on a trade predicting the capture of Venezuelan president Nicolas Maduro. Subsequently, six Polymarket accounts cashed out nearly $1 million by predicting the U.S. would attack Iran before Feb. 28.
And it’s not just states that are worried. Even the feds are on high alert. The U.S. Attorney's Office for the Southern District of New York is currently investigating potential insider trading incidents on prediction market platforms. And a recent White House Management Office email warned staff about profiting from insider information.
In fact, the only organization that does not appear to be taking action relative to insider trading on prediction market platforms is the Commodity Futures Trading Commission (CFTC) – the federal agency in charge of regulating prediction markets. So far, the thinly staffed agency has done little to allay concerns relative to the misuse of the nascent trading platforms.
In a recent Congressional hearing, CFTC Chair Michael Selig was somewhat vague about the agency’s plans to address the issue. While he stated that the agency maintains a “zero tolerance” policy regarding insider trading, he didn’t share any information regarding any ongoing agency investigations or enforcement actions when probed by House members.
