Kalshi reported 32 cases of suspected insider trading

The betting platform Kalshi reported to regulators 32 cases of suspected insider trading during the second quarter of the year, according to a report by The New York Times. According to sources, the regulator that oversees Kalshi and similar platforms, the Commodity Futures Trading Commission (CFTC), is currently conducting up to 20 active investigations based on evidence provided by Kalshi.

Kalshi and its main competitor, Polymarket, allow users to bet on any possible event — from the results of sports events and awards ceremonies to current events such as interest rate decisions, military operations, and even whether Donald Trump will say a certain word in a speech.

Over the past year, several high-profile cases of suspected insider trading have been published. In February, an Israeli citizen and an IDF reservist were accused of using classified information to place bets on Polymarket. In April, an indictment was filed against an American soldier who was involved in the capture of Venezuelan President Nicolas Maduro and won $400,000 on a bet on Polymarket.

The number of cases reported by Kalshi in the second quarter represents a significant increase compared to the first quarter, when the company reported only 12 suspected cases to the commission. Polymarket reported more than 90 cases of suspected insider trading to authorities in the US and other countries this year.

According to the companies, sophisticated monitoring tools allow them to identify more cases of insider trading. But the volume of reports also indicates that this is a persistent and growing problem for the platforms.

"In the past, if a speaker finished a briefing earlier than expected, or a baseball player changed his pitching style in the middle of a game, we never wondered if they had a financial incentive to do it," Prof. Andrew Verstein of the UCLA School of Law told The New York Times. "Now, there is a possibility that everything is timed."

He also highlights the weakness of the regulator and the difficulty the commission faces in dealing with this issue. The CFTC is operating with its smallest staff in at least the last 20 years, following massive cuts made by the Trump administration. Today, the commission employs only about 100 people, whose primary responsibility is the commodities market, which is significantly larger than the betting markets. As a result, these markets receive fewer resources, and the commission has managed to file indictments for insider trading against only three bettors.

In addition, according to The New York Times report, the commission is operating under regulatory capture: although it has the option to limit the scope of insider trading by banning bets on events that only a small group of people are aware of, it has refused to do so. CFTC Chairman Michael Selig has previously said that the government must protect the freedom of Americans to trade in betting markets. Under this concept, the commission introduced new rules designed to minimize the regulation of betting markets, similar to the broad concept of the Trump administration.

Under these rules, the commission will not ban certain types of bets across the board. Instead, the commission will examine bets on a case-by-case basis and judge whether there is an increased suspicion of fraud. Not surprisingly, some of the companies that will benefit from these rules have ties to Trump and his family: Donald Trump Jr. is a paid consultant for Kalshi and an investor in Polymarket. Trump Media & Technology Group announced this week that it has signed a marketing agreement with the crypto exchange crypto.com, which is also regulated by the CFTC.

"Their philosophy is, 'We'll let everything in, and then maybe we'll take some things out,'" said Timothy Massad, CFTC Chairman under Barack Obama. "But of course that's an illusion. There are too many bets to examine, and they will probably only disqualify a few of them."

The commission responded to The New York Times: "The agency has the staff, expertise, and tools necessary to conduct effective oversight of these markets."