NEW YORK — Former Venezuelan President Nicolás Maduro could have traded on his own capture without necessarily violating federal insider trading law, the nation’s top prediction market enforcement official said Thursday, explaining it as a distinction between potentially breaking an exchange’s rules and violating the law.
- Federal insider trading violations generally involve breaching a duty to protect confidential information, Miller said.
- Maduro-related trades and candidates trading on their own races have already prompted enforcement actions.
- Miller defended the CFTC’s enforcement capabilities as election trading and manipulation concerns draw scrutiny.
Commodity Futures Trading Commission (CFTC) enforcement director David Miller addressed the hypothetical during the NEXTPredict conference in New York. Asked whether Maduro could legally have bought a contract predicting his capture after spotting approaching U.S. military helicopters, Miller said the trade might violate an exchange's rules without necessarily breaking federal law.
“That doesn’t mean that you’re breaking federal law,” Miller said while noting exchanges have their own trading restrictions and that market manipulation remains prohibited.
Inside info isn't always insider trading
The hypothetical underscored a central question facing prediction markets as they expand: When does someone’s knowledge about an event become information they are legally prohibited from using?
Miller said insider trading generally involves breaching a duty to the source of material nonpublic information. An employee trading on confidential information taken from an employer, for example, could violate that obligation.
Possessing an informational advantage does not automatically establish that breach, Miller said. He noted that commodity markets have for decades allowed agricultural businesses to use knowledge about their own crops to hedge financial risks.
Individual exchanges can impose additional restrictions, including banning people from trading on events involving themselves, Miller said. Breaking an exchange's rules can lead to fines or suspensions without necessarily violating federal insider trading law. Simply knowing something about an event doesn't automatically make trading on it a crime.
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Scrutiny increases
As integrity continues to draw scrutiny in prediction market news, Miller used the scenario of Maduro trading on his own capture to better define the line between legal and illegal trades. While Maduro trading would not necessarily have violated insider trading law, federal authorities in April charged an Army service member, alleging he used confidential information about the capture operation to earn more than $400,000 on prediction market trades.
Similar questions extend to political candidates and campaign employees.
Kalshi announced fines and suspensions against three political candidates in April for trading on their own races. Miller said campaign staff members who misuse confidential information to trade could violate insider trading law. Miller also warned that making false statements to influence contract prices could constitute market manipulation, even when trading on the underlying information is otherwise legal.
With the midterm elections approaching, questions about manipulation in political prediction markets have attracted more attention. Major casino companies and established exchanges have questioned whether regulators can adequately monitor the growing number of sports, election, and other event contracts.
Miller said the CFTC has investigated several candidates over election-related trading and statements he described as “inconsistent with the truth.” He declined to discuss specific cases.
A former federal prosecutor and CIA attorney, Miller said his agency is well equipped to deal with election trading fraud and other potential illegal acts. Recent proceedings involving Maduro-related and election contracts are indicators of successful enforcement.
“To the extent that people think that the division of enforcement or myself are shrinking violets and we’re not doing our job, they are sorely mistaken,” Miller said.
