In a March 31 speech at New York University Law School, David Miller, the newly appointed Director of Enforcement at the Commodity Futures Trading Commission (CFTC), told the audience, “the era of regulation by enforcement is over,” signaling a major shift in the commission’s strategy.
During the speech, he emphasized that under the CFTC’s current leadership, the commission would focus on its core mission of “policing fraud, abuse, and manipulation” instead of setting policy.
He also delivered one of the clearest warnings yet to prediction market traders, saying the commission will “aggressively detect, investigate, and, where appropriate, prosecute insider trading” in these markets.
Miller stressed that using inside information to trade on prediction markets isn’t a victimless crime and has “serious consequences for market integrity and trust.”
Miller Says Prediction Markets Are Not Exempt From Insider Trading Law
Miller used his speech at NYU to outline five of the CFTC’s key enforcement priorities, putting insider trading and market manipulation at the top of the list.
He specifically called out what he described as a “myth in the mainstream media and social media” that prediction markets are exempt from insider trading laws, saying those assertions were “wrong.”
The Commodity Exchange Act and Rule 180.1, which were both modeled after federal securities laws, allow the agency to treat certain kinds of insider trading in commodity and swap markets as fraud, Miller explained.
A trade comes under scrutiny when it involves information someone had an obligation to protect, he said, stressing that regular informed trading isn’t a problem and that the agency goes after those who “tip or trade with misappropriated information.”
Prediction market exchanges also have a responsibility to protect their platforms, according to Miller, who called them the “first lines of defense” against insider trading and manipulation. He noted that the exchanges had a statutory obligation to “protect markets from abusive practices” and only list contracts that aren’t “susceptible to manipulation.”
Former CFTC regulator Carl Kennedy explained these responsibilities to CasinoBeats during an interview in February, saying:
“The CFTC is a mighty strong agency, but it’s a few people,” which is why Congress gave it the authority to let exchanges “help the agency regulate these markets.” He added, “If you are a registered exchange … one of your roles is also to be a regulator deputized by the CFTC to police your own market.”
As part of their duty to police their own markets, Miller said exchanges have “an obligation to have appropriate surveillance, compliance practices and procedures” in place to “promote fair and equitable trading.”
During his speech, Miller also highlighted a recent case involving Kalshi, where a MrBeast editor used information he’d learned on the job to place trades on the platform.
He also pointed to the CFTC’s new information-sharing agreement with MLB as an example of the agency’s proactive approach to integrity risks in event contract markets.
Insider Trading Pressure Keeps Building in Washington
Miller’s remarks at NYU come as the CFTC and prediction markets are facing increased pressure from Capitol Hill to stamp out insider trading.
On March 29, Sen. Elizabeth Warren (D-MA), along with 41 other lawmakers, sent a letter to CFTC Chairman Michael Selig and the Office of Government Ethics calling on them to issue formal guidance to federal employees, warning them not to use inside information to place trades on prediction markets.
In that letter, the lawmakers point to suspicious trading leading up to the capture of Nicolás Maduro by U.S. Armed Forces in January, as well as well-timed bets that appeared to anticipate the joint U.S.-Israeli strikes on Iran in March, and speculation over the status of former Department of Homeland Security Secretary Kristi Noem’s job.
Congress is also using legislation to go after insider trading on prediction markets, introducing several bills since the beginning of the year, including:
- The PREDICT Act: Banning members of Congress and senior federal officials from trading on political event contracts.
- The Public Integrity in Financial Prediction Markets Act: Prohibiting federal officials from trading when they possess material nonpublic information obtained through their official duties.
- The End Prediction Market Corruption Act: Barring the president, vice president, and members of Congress from trading event contracts entirely.
Given the emphasis on insider trading during Miller’s speech, it seems like the CFTC is trying to send a message before the next scandal breaks: while prediction markets may be new territory politically, the agency doesn’t see insider trading as a legal gray area and has the power to go after traders who misuse nonpublic information.
