State Officials in New York and Illinois Barred from Prediction Market Trading via Executive Orders
Following Illinois' lead from earlier in the week, New York's Governor Kathy Hochul has issued an executive order prohibiting state government workers from engaging in prediction market wagering as a measure against insider trading.
An executive order prohibiting state government workers from placing wagers on prediction markets has been enacted by New York Governor Kathy Hochul, mirroring an identical action taken by Illinois just days prior this week.
"Getting rich by betting on inside information is corruption, plain and simple," Hochul said on Wednesday, adding: "Our actions will ensure that public servants work for the people they represent, not their own personal enrichment."
The governor also launched criticism at congressional Republicans and the Trump administration for permitting an "ethical Wild West" to emerge surrounding prediction markets while failing to establish any "meaningful ethical standards" as safeguards against insider trading activities.
The rate at which prediction markets are being embraced is increasing dramatically, with trading volumes on a monthly basis climbing for seven straight months to reach an unprecedented peak of $23.6 billion in March, encompassing markets that span sports, elections, financial outcomes, and cultural events.
Yet, this surge in popularity has been met with mounting worries regarding market manipulation and insider trading practices.
On Tuesday, Illinois Governor JB Pritzker likewise enacted an EO that prohibits state workers from participating in prediction market wagering, declaring:
"Illinois is doubling down on its commitment to a transparent and ethical government by bolstering its current state laws to prevent insider trading amid the rapid growth of online prediction markets and event-based gambling contracts."
Insider trading accusations in prediction markets
Several instances of suspected insider trading connected to US military operations were referenced in Hochul's EO.
Among these cases was a Polymarket user who wagered on low-probability odds that Venezuelan president Nicolás Maduro would be removed from power mere hours prior to his capture by US forces, generating approximately $400,000 in profits.
A separate incident involved questionable trading activity regarding Iran's invasion and the passing of its Supreme Leader, Ayatollah Khamenei, which occurred in late February.
According to Hochul's EO, violations could lead to termination and potential law enforcement proceedings, while also specifying that state officers and employees in New York are prohibited from helping others gain profits through prediction markets using confidential information.
In the meantime, prediction market platforms have been implementing their own measures to combat potential insider traders.
Kalshi announced in February that it had prohibited a former California gubernatorial candidate after he placed a $200 wager on his own candidacy the previous year.
While Kalshi refrained from identifying the individual by name, information contained within the enforcement summary corresponds with public statements made by Kyle Langford, who previously switched from Republican to Democrat and is currently seeking election to the US House for California's 26th Congressional District.
Kalshi faces regulators in Nevada and New York
This most recent EO contributes to a growing trend of enforcement actions by US states seeking to regulate prediction market operations.
In October, the New York State Gaming Commission issued a cease-and-desist letter to prediction market operator Kalshi for illegally running an unlicensed mobile sports wagering platform within state borders.
Additionally, Kalshi finds itself in ongoing litigation with the Nevada Gaming Control Board following a lower court's decision to temporarily halt Kalshi's operations in the state, with regulators contending that Kalshi's contracts amount to unlicensed gambling activities.
Paul Grewal, chief legal officer at Coinbase, has forecasted that this case may ultimately be heard by the US Supreme Court, which could establish important precedent concerning how prediction markets and event-based derivatives are treated from a regulatory standpoint.