Comment letter urges CFTC to prohibit event contracts tied to official government actions, warning of insider trading risks, tokenization loopholes, and threats to market integrity and national security

WASHINGTON, D.C.—Legal ethics experts submitted a formal comment to the Commodity Futures Trading Commission today, urging the agency to take decisive action to restrict prediction markets tied to official government actions. The letter, addressed to the CFTC in response to the Commission’s Advance Notice of Proposed Rulemaking on prediction markets, calls for a clear prohibition on event contracts linked to federal government decisions, along with stronger safeguards against manipulation and abuse, citing risks of insider trading, market manipulation and corruption.

The comment argues that markets allowing bets on official government actions pose significant risks to the integrity of both financial systems and public governance. According to the submission, these products create new and avoidable opportunities for insider trading and the misuse of nonpublic government information for private financial gain.

“These markets pose significant new challenges in the fight to prevent federal employees from abusing their offices and nonpublic information for private gain,” the letter states.

The letter comes amid heightened concern over recent cases involving prediction markets and sensitive U.S. government activity. One case involving U.S. military operations in Venezuela resulted in charges against a service member using classified information to place bets on the capture of former Venezuelan President Nicolás Maduro, allegedly profiting more than $400,000. Federal prosecutors described it as one of the first insider trading cases tied directly to prediction market platforms. Since then, it’s been reported that over $2 billion in wagers have been placed on Polymarket in relation to the Iran War, prompting calls for investigations from congressional lawmakers.

“No one should be allowed to place bets on official government actions,” said Amb. Norm Eisen (ret.), co-founder and executive chair of Democracy Defenders Fund. “When our government’s decisions are turned into financial contracts, it opens the door to insider trading, market manipulation, and corruption. We’re already seeing trading patterns and allegations of unusually timed wagers. These markets absolutely need regulation.”

“While prediction markets raise broad ethical concerns, there’s a more immediate and alarming risk: Large or well-timed positions can signal classified decisions to foreign actors,” said Richard Painter, former associate counsel to President George W. Bush. “A sudden multimillion-dollar bet tied to military activity can reveal planned operations to our adversaries, creating real national security risks to the United States.”

The comment was submitted as part of the CFTC’s ongoing review of prediction market regulation under its Advance Notice of Proposed Rulemaking, and is signed by:

• Amb. Norm Eisen (ret.), co-founder and executive chair of Democracy Defenders Fund and former special counsel to President Barack Obama.

• Richard W. Painter, former associate counsel to President George W. Bush.

• Virginia Canter, chief counsel and director of ethics and anti-corruption at Democracy Defenders Fund and former associate counsel to Presidents Barack Obama and Bill Clinton.

• Chris Swartz, senior ethics counsel at Democracy Defenders Fund.

The comment can be found here.

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Democracy Defenders Fund brings together a nonpartisan team to work with national, state and local allies across the country to defend in real-time the foundations of our democracy.