New CFTC Enforcement Director to Focus on Insider Trading in Prediction Markets
CFTC Director of Enforcement, David Miller warned prediction market participants that the CEA's insider trading laws apply with full force to event contracts.
In his first address as the new Director, Mr. Miller rejected a view promoted by prominent figures in finance and social media that insider trading is either legal or even beneficial in prediction markets. He said that some have argued that trading on confidential information helps "price in" that information for the public good. Mr. Miller stated that the CEA's "anti-fraud provisions apply with full force" to event contracts, which the agency considers swaps under the law.
He warned that anyone who "trade[s] on ... material non-public information in breach of a []duty" owed to the source of that information can face liability. He said that this includes a wide range of potential bad actors — government employees trading on non-public policy information, sports trainers with advance knowledge of player injuries, corporate employees violating confidentiality agreements, and others. The Director also highlighted the so-called "Eddie Murphy Rule," which specifically bars trading "on stolen government information." He pointed to a recent example on Kalshi, a regulated exchange, where a trader appeared to have inside knowledge about a YouTube channel contract he was actively trading. He also flagged injury contracts as a particular area of concern, citing both manipulation and insider trading risk.
Mr. Miller also made clear that regulated exchanges share responsibility for policing these markets, and that the CFTC expects them to implement surveillance, cooperate with integrity organizations, and carefully evaluate contracts before listing them. He noted that the CFTC recently signed a Memorandum of Understanding with Major League Baseball as one example of this collaborative approach.
More broadly, Mr. Miller said the Division will focus on five core enforcement priorities for the Division: (i) insider trading, including within prediction markets; (ii) market manipulation, with a particular focus on the energy markets; (iii) "market abuse [and] disruptive trading," such as "spoofing [and] wash trading;" (iv) retail fraud, including Ponzi schemes and digital impersonation frauds; and (v) willful violations of Anti-Money Laundering and Know-Your-Customer laws.
Mr. Miller also announced an upcoming Staff Advisory on Cooperation designed to simplify and further incentivize voluntary disclosure. He detailed that the new policy will offer a clear path to a declination for eligible parties who promptly self-report in good faith, fully cooperate on a "binary" basis, and fully remediate the issues, which includes compensating victims and disgorging ill-gotten gains. He added that the new policy will credit self-reporting even if the CFTC independently knew about the issue confidentially, provided the information was not already public or facing an imminent third-party disclosure.