A group of prominent Democratic lawmakers is pressing the Commodity Futures Trading Commission (CFTC) to impose strict new rules on prediction markets, arguing that platforms such as Polymarket and Kalshi have veered dangerously far from their original purpose and are now undermining election integrity, enabling insider trading, and encroaching on state gambling laws.
In a strongly worded letter sent to the CFTC on Thursday and first shared with CNBC, the lawmakers, led by Sen. Jeff Merkley (D-Oregon), called on the agency to use its regulatory authority to “preserve the intent of prediction markets” and prevent what they described as “the rapid erosion of integrity” in the sector.
“We strongly encourage you to use your authority to preserve the intent of prediction markets, and congressional intent behind the Commodity Exchange Act, by issuing a rule that prevents insider trading and corruption in the market and prohibits event contracts on the outcome of elections, war and military actions in the U.S. or abroad, sports, and government actions without a valid economic hedging interest,” the letter stated.
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The letter was also signed by Sens. Richard Blumenthal (D-Connecticut), Chris Van Hollen (D-Maryland), Sheldon Whitehouse (D-Rhode Island), and Rep. Jamie Raskin (D-Maryland).
Prediction markets have exploded in popularity over the past year, attracting billions of dollars in trading volume and intense scrutiny from regulators and lawmakers. The surge gained particular attention during the 2024 presidential election cycle, when platforms like Polymarket saw massive betting activity on political outcomes.
Recent high-profile incidents have intensified concerns. Last week, a U.S. soldier was arrested for allegedly placing bets worth hundreds of thousands of dollars on Polymarket related to upcoming military action in Venezuela. Separately, Kalshi suspended and fined three political candidates for allegedly trading on contracts tied to their own election campaigns.
The lawmakers warned that event contracts linked to elections pose a direct threat to democratic processes.
“These types of contracts did not exist before 2024 in the United States and for good reason,” they wrote. “Election-related prediction contracts create a financial incentive for political insiders involved in elections to subvert the will of American voters by altering their behavior.”
Sports betting contracts have also come under heavy fire. According to the Congressional Research Service, sports events accounted for nearly 90% of betting volume on Kalshi in the year ending February, and 38% on Polymarket. The lawmakers argued that such contracts have little to do with legitimate hedging or price discovery and instead represent little more than gambling.
“Event contracts on the outcome of a sports game or event are far from the intent of the CFTC’s mission,” the letter said. “They are one of the most egregious examples of how these contracts represent gambling and violate states’ rights to regulate this activity.”
Several pieces of legislation have already been introduced in Congress this year to address these concerns. Merkley sponsored a bill in March that would ban certain government officials from participating in prediction markets entirely. Another bipartisan-backed bill, introduced by Merkley in the Senate and Raskin in the House, seeks to prohibit contracts on elections, wars, and sports.
The CFTC itself is currently engaged in a formal rulemaking process. In March, the agency issued a call for public comments on how to regulate event contracts, a process that officially closed on Thursday. CFTC Chair Michael Selig described the effort as “an important step in the Commission’s continued effort to promote responsible innovation in our derivatives markets.”
Selig has been vocal in defending the CFTC’s exclusive federal jurisdiction over prediction markets, pushing back against state regulators who have tried to shut down or restrict platforms like Kalshi on gambling grounds. The agency has filed lawsuits against several states, and in April, a federal appeals court ruled that New Jersey could not ban Kalshi users from betting on sporting events.
“What we’re seeing is an attempt by the state gaming commissions to effectively nullify federal law,” Selig said in March on CNBC’s “Squawk Box.”
The growing political and regulatory backlash underlines deep unease over how rapidly prediction markets have evolved from niche tools for forecasting economic or weather events into high-stakes gambling arenas on elections, wars, and sports — often with real potential for insider trading and market manipulation.