📊 Kalshi and Polymarket under fire

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Bloomberg Businessweek dedicated 6,000 words to Kalshi and Polymarket yesterday, and the portrait is unflattering. The piece opens with traders betting on which words Jerome Powell will say during an FOMC presser, then spends most of its word count cataloging the industry's growing list of problems: insider trading accusations, market manipulation, inconsistent resolution rules, and state-level lawsuits threatening the CFTC-regulated model both companies depend on.

The specific incidents are hard to wave away. A trader linked to Lord Miles apparently bet against his own desert fasting stunt on Polymarket and walked away with $60,000. An anonymous user placed suspiciously timed bets on Maduro's ouster hours before US special forces showed up, netting $400,000. Another trader cashed out $1.2 million on Google's most-searched people with a blockchain trail suggesting insider knowledge. Polymarket's response to all of these, per Bloomberg: no comment.

Resolution disputes might pose a bigger long-term credibility problem than manipulation. Polymarket delegates outcome decisions to holders of a crypto token called UMA, and according to Sentora data, whales who each own at least 1% of all tokens control 95% of the total pool. The "decentralized" label starts to feel generous. Over at Kalshi, the internal resolution team once ruled a mention market as "No" because an executive said "Warner Brothers" instead of "Warner Bros." These rulings keep piling up, and each one chips away at the platforms' credibility with their own users.

On the regulatory front, Kalshi is either plaintiff or defendant in at least a dozen lawsuits with states and Native American tribes arguing it operates as an unlicensed gambling platform. Polymarket was recently banned in Nevada. Both companies need CFTC jurisdiction to survive, and right now Chairman Michael Selig is giving them a friendly window by withdrawing Biden-era proposals to ban sports and political markets. Selig himself framed the goal as "future-proofing" against the next hostile administration, which is less a statement of confidence than an admission that the whole framework could flip with the next election cycle.

The piece also surfaces something the industry hasn't reckoned with: the platforms' social media behavior actively undermines their "source of truth" positioning. Polymarket posted a false "BREAKING" claim about Iranian regime forces losing control of Tehran. Both companies ran affiliate programs that handed badges to accounts spreading misinformation. As Dustin Gouker put it: "I don't know how you can be over here saying, 'We're the greatest source of truth mankind has ever known,' and then your social media team is just lying."

The Bloomberg piece marks a shift in how mainstream media covers prediction markets. The honeymoon narrative about plucky startups democratizing information is giving way to harder questions about trust, manipulation, and whether the platforms can actually deliver on their own promises. Kalshi and Polymarket raised at $11 billion and $8 billion valuations respectively. At those numbers, sloppy resolution rules and unanswered manipulation allegations stop looking like growing pains and start looking like structural problems the industry chose not to fix.

Kalshi is preparing to publish its first wave of enforcement actions against users. Robert DeNault, the former White & Case associate who joined as head of enforcement in October, told Decrypt he's spent most of his first few months working through a "backlog" of suspicious trades and that disciplinary disclosures will begin "in the coming weeks." Some cases have been referred to law enforcement, according to CEO Tarek Mansour.

In early February, Kalshi set up the infrastructure for this: an independent Surveillance Advisory Committee staffed by Lisa Pinheiro from Analysis Group and Daniel Taylor from Wharton's Forensic Analytics Lab, committed to publishing quarterly stats on flagged trades, investigations, and disciplinary proceedings. They also partnered with surveillance vendor Solidus Labs across 4,000+ markets. DeNault's disclosures are the first tangible output of that buildout.

A $400,000 payout on Polymarket tied to the capture of Venezuelan President Nicolás Maduro last month drew exactly the kind of scrutiny the industry doesn't need right now. Rep. Ritchie Torres has since introduced legislation targeting insider profiting on prediction markets. And the "insider trading is a feature, not a bug" crowd - which DeNault called "mind-numbing" - has been loud enough that Mansour felt compelled to push back on X, arguing that volume only follows when traders feel like they're getting a "fair shake."

DeNault's framework borrows from traditional exchange discipline. Kalshi bars anyone affiliated with the entity responsible for a contract's resolution from trading that market - even if they don't profit, violations result in public notices. His go-to example: background performers at the Super Bowl halftime show who signed confidentiality agreements would be barred from trading halftime markets on Kalshi, whether or not a federal regulator would care. "Those are types of policing activity that we might see on the exchange that you wouldn't see necessarily from a federal regulator," he said.

The federal regulator that's supposed to be doing this work, meanwhile, is thinning out. The CFTC's Chicago enforcement office is losing attorneys, per Barron's, and Chair Mike Selig has talked about replacing capacity with AI-driven regulation. Kalshi building its own enforcement arm while the agency shrinks is either proactive self-governance or a bet that no one else will do it. Probably both.

The real test is what these disclosures actually look like. How detailed will they be? Will users be named? Will the categories distinguish insider trading from manipulation from account fraud? If Kalshi publishes with real specificity - and the advisory committee's quarterly reports hold up - it'll be the strongest argument yet that prediction markets can police themselves. That's a case worth making before Congress decides to make it for them.

The Boston Globe published an editorial Sunday arguing that if the federal government won't regulate prediction markets, states need to do it themselves. The timing isn't subtle. In December alone, users traded nearly $12 billion on Kalshi and Polymarket, a 400% increase from a year earlier, and some analysts project annual volume could hit a trillion dollars by decade's end. The Globe's argument: those numbers should rattle regulators, and so far they haven't.

The federal side of the equation is getting less convincing by the week. CFTC Chair Mike Selig filed an amicus brief on February 17 asserting exclusive federal jurisdiction over prediction markets, arguing that event contracts are swaps under the Commodity Exchange Act. He also stood up a 35-member Innovation Advisory Committee that includes the CEOs of Polymarket, Kalshi, Coinbase, Robinhood, FanDuel, and DraftKings, but zero consumer advocates. Former CFTC Chair Timothy Massad has said publicly that the agency doesn't have the expertise or staff to police these markets. The Globe essentially agrees: if this is what federal oversight looks like, it's not oversight.

States aren't waiting around. Massachusetts Attorney General Andrea Campbell secured a court order in January blocking Kalshi from offering sports wagers in the state until it complies with state gambling laws. Nevada's Gaming Control Board got a temporary restraining order against Kalshi for operating unlicensed sports betting. Tennessee's Sports Wagering Council called Polymarket's sports contracts "an immediate and significant threat to the public interest." These aren't polite requests — they're enforcement actions, and they're stacking up.

The Trump administration is pushing back hard. It shut down Biden-era investigations, eliminated rules around election and sports betting, and is leaning on the CFTC-as-sole-regulator framework to preempt state action. Donald Trump Jr. advises both Kalshi and Polymarket and is an investor in Polymarket. The White House has a clear position: these are federally regulated financial instruments, full stop. The states' position is equally clear: if 90% of Kalshi's annualized fee revenue comes from sports trading, calling it a derivatives exchange doesn't change what it is.

The Globe's editorial board wants the Massachusetts Legislature to go further: explicitly prohibit insider trading on prediction markets and require platforms to obtain licenses from the Massachusetts Gaming Commission. That second piece matters. Right now, prediction markets operate in a classification gray zone that lets them bypass both securities regulation and state gambling law. Forcing licensing at the state level collapses that ambiguity, at least locally.

Three smaller prediction market platforms already shut down in January, citing compliance costs and legal confusion. Regulatory preparation now eats 15–20% of operational budgets for mid-sized platforms. The jurisdictional fight between states and the CFTC could drag into 2027, with multiple court hearings and appeals likely. In the meantime, the industry is building at a pace that makes the regulatory gap wider every month. The Globe's argument boils down to a question nobody in Washington seems interested in answering: if not the states, then who?

📈 Biggest swing: “Will Barron Trump attend the 2026 State of the Union address?” moved 33% → 56% (Polymarket)

💰 Top earner: @GoldenPants13 - $84,761 24H Profit (Kalshi)

🤔 Weirdest market: “SBF released from custody in 2026” (Polymarket)