What Happened in March 2026
On March 23, 2026, Senators Adam Schiff (D-California) and John Curtis (R-Utah) introduced the Prediction Markets Are Gambling Act (S. 4160), a bipartisan Senate bill aimed squarely at the prediction market industry. The legislation would amend the Commodity Exchange Act to bar any CFTC-registered platform from listing contracts that closely resemble sports bets or casino-style games. The same day, both Kalshi and Polymarket announced new insider trading bans and surveillance measures.
The timing was not coincidental. The bill landed in the middle of an escalating crisis: criminal charges against Kalshi in Arizona, suspicious trading on geopolitical events, a MrBeast editor caught trading on inside information, and a wave of state bills aimed at prediction markets. What had been a regulatory skirmish between states and platforms became a full-scale battle involving Congress, the CFTC, state attorneys general, tribal governments, and the White House.
This article explains what happened, what has changed since, and what it means for anyone trading on prediction markets now.
October 2026 Update: What Changed Since March
The fight escalated on every front after March:
- Criminal charges arrived. In April, federal prosecutors in Manhattan charged a US Army Special Forces master sergeant with using classified information about the Maduro operation to win roughly $400,000 on Polymarket, and the CFTC filed a parallel civil case. In May, prosecutors charged a Google software engineer with using confidential search data to make more than $1.2 million on Polymarket. Both cases are allegations, not convictions.
- Congress policed itself. On April 30, the Senate passed a resolution by voice vote barring senators and Senate staff from trading event contracts. The Schiff-Curtis bill was referred to the Senate Agriculture Committee and has not passed.
- The CFTC started writing rules. After a March advance notice, the agency proposed a contract-by-contract public-interest review in June. On October 9, it issued an interim final rule excluding casino-style gambling from the definition of a swap, plus a proposal to bring event contracts on sports, politics, culture, and weather within it.
- The courts split. The Third Circuit sided with Kalshi against New Jersey in April. The Ninth Circuit (Nevada, August 28) and the Sixth Circuit (Ohio and Tennessee, September 25) sided with the states. New Jersey asked the Supreme Court to step in on September 2.
- Arizona's prosecution stalled. The CFTC and the Justice Department sued Arizona, Connecticut, and Illinois on April 2, and a federal judge blocked Arizona's criminal case against Kalshi. After the Ninth Circuit's ruling, Arizona's attorney general has pushed to revive it.
- States kept legislating. Kentucky enacted a 14.25% excise tax on prediction market transaction fees over the governor's veto, and Utah's prop-bet law took effect in May.
The Insider Trading Scandals That Triggered the Crackdown
The prediction market industry's integrity problem didn't appear overnight. It built through a series of incidents in the months before the bill, each one raising the same question: can anonymous traders profit from non-public information about military strikes, product launches, and political events — and can anyone actually stop them?
The Venezuela Bet: $400,000 on a Long Shot
In late December 2025, a new Polymarket account began betting that Venezuelan President Nicolás Maduro would be out of power by January 31, 2026 — an outcome the market priced as a long shot. Its biggest position, about $32,500, was bought at prices implying well under a 10% chance.
US forces captured Maduro and his wife in Caracas in the early hours of January 3, 2026. The account's Maduro-related bets returned roughly $400,000 in profit (some on-chain trackers put it at $436,759.61), and the largest buys came only hours before the operation. Rep. Ritchie Torres (D-New York) responded with the Public Integrity in Financial Prediction Markets Act, which would bar federal officials from trading prediction market contracts while holding material nonpublic information.
In April 2026, prosecutors said they knew who was behind it. They charged a Special Forces master sergeant who, they say, was involved in planning the operation, accusing him of using classified information to place the bets. The CFTC filed a parallel civil complaint, and Polymarket said it had referred the suspicious trades to the Justice Department and cooperated with the investigation. The charges remain allegations until proven in court.
The Iran War Trades: More Than $1 Million
The pattern repeated weeks later. Ahead of the US strikes on Iran at the end of February 2026, six newly funded Polymarket wallets bet that the US would strike Iran before the month was out. Blockchain analytics firm Bubblemaps said they netted about $1.2 million, with some shares bought only hours before the first explosions were reported in Tehran. One account alone reportedly made more than $515,000. In March, a cluster of brand-new accounts bet on a US-Iran ceasefire shortly after President Trump said he was considering winding down the strikes.
Senator Chris Murphy (D-Connecticut) wrote that "it's insane this is legal." Because Polymarket's global platform only requires a crypto wallet, analysts could not identify who was behind the accounts.
Separately, in February 2026, Israeli authorities announced that they had arrested several people and indicted two of them, a military reservist and a civilian, over Polymarket bets on military operations allegedly placed using classified information. The bets were reportedly tied to Israel's June 2025 strikes on Iran. It was the first publicly known criminal case over prediction market bets made with military secrets.
The MrBeast Editor: Kalshi's First Public Enforcement
On February 25, 2026, Kalshi disclosed its first completed insider trading cases. An editor who worked for YouTube creator MrBeast (James Donaldson) had traded about $4,000 on markets tied to MrBeast's content while holding non-public information from work. Kalshi suspended him for two years, imposed about $20,400 in penalties (a $15,000 fine plus his trading profits), and reported the case to the CFTC. The second case involved Kyle Langford, a former California gubernatorial candidate who bet about $200 on his own candidacy; he was fined $2,200 and banned for five years.
Kalshi said it had opened about 200 insider trading investigations over the prior year, more than a dozen of which became active cases, and that it would donate the fines to a non-profit that provides consumer education about derivatives markets.
The OpenAI and Google Cases
Tech cases fit the same pattern. In the week before OpenAI released GPT-5.2 on December 11, 2025, four Polymarket accounts bet that the company would ship a new model by mid-month and collectively made more than $13,000. Around the same time, an account called AlphaRaccoon reportedly made about $1 million in a single day betting on Google's 2025 Year in Search rankings.
The OpenAI accounts were never identified. The Google one was: in May 2026, federal prosecutors charged a Google software engineer with using confidential company data to make more than $1.2 million on Polymarket under that name. The charges are unproven.
Until the spring of 2026, none of these cases had produced criminal charges. Taken together, they painted a picture of an industry where the tools to detect and punish insider activity lagged far behind the incentives to commit it.
The Prediction Markets Are Gambling Act: What It Actually Says
The Schiff-Curtis bill is narrow in scope but potentially devastating in impact. Here's what it would do — and what it wouldn't.
What the Bill Prohibits
The legislation would amend the Commodity Exchange Act to bar any CFTC-registered entity from listing a contract that closely resembles a sports bet, covering both professional and college sports, or a casino-style game such as slots, blackjack, or poker. It would not preempt state laws that regulate or prohibit those games.
In plain English: if this bill passes as written, Kalshi, Polymarket, DraftKings Predictions, and every other CFTC-registered platform would be forced to pull all sports contracts and any casino-style games from their platforms.
What the Bill Does NOT Prohibit
The bill does not touch prediction markets on politics, economics, crypto, weather, culture, or other non-sports categories. Contracts on Fed rate decisions, election outcomes, inflation data, Bitcoin price targets, and similar events would be untouched by this legislation.
This is a critical distinction. The bill targets sports specifically because that's where the state-versus-federal jurisdictional conflict is most acute. Sports betting is regulated by states. Prediction markets are regulated by the CFTC. Critics argue that when prediction markets offer sports contracts, they're effectively running a nationwide sports betting product that bypasses state gambling commissions, pays no state gaming taxes, and skips state consumer protections.
Why This Bill Matters More Than Previous Proposals
Prediction markets have faced hostile legislation before, including the Blumenthal-Kim bill introduced on March 11 and the BETS OFF Act from Senator Chris Murphy and Representative Greg Casar, introduced on March 17. But the Schiff-Curtis bill carries two features the others lack.
First, it's bipartisan. Schiff is a Democrat on the Senate Agriculture Committee (which oversees the CFTC). Curtis is a Republican from Utah — a state that bans all gambling. Nevada Democrat Catherine Cortez Masto signed on as a cosponsor. When both parties agree on restricting an industry, the legislative odds improve.
Second, it has powerful institutional backing. The American Gaming Association (AGA) and the Indian Gaming Association both welcomed the bill. The AGA's casino members, including MGM and Caesars, have watched prediction markets capture sports betting market share without paying state gaming taxes, and they want it stopped. DraftKings and FanDuel quit the AGA in November 2025 to launch their own prediction markets. For a deeper understanding of how prediction markets compete with traditional sportsbooks, see our prediction markets vs. sports betting comparison.
How Kalshi Responded
Kalshi cast the bill as a product of casino interests. Its position — shared by most of the prediction market industry — is that sports contracts are commodity derivatives, not sports bets, that only the federal government has jurisdiction over them, and that bans push activity to offshore sites with no US oversight. Since March, federal appeals courts have split on exactly that question.
What Kalshi and Polymarket Are Doing in Response
Both platforms announced new integrity measures on March 23, 2026. Here's how they compare.
Kalshi's New Rules
Kalshi introduced three major changes:
Preemptive sports screening. Building on its existing partnership with Integrity Compliance 360 (IC360), a monitoring firm also used by state-regulated sportsbooks, Kalshi now blocks college and professional athletes, team personnel, and referees from trading on markets related to sports they're involved in, instead of investigating only after trades are placed.
Preemptive politician screening. Political candidates are now blocked from trading on their own campaigns, extending an existing ban on elected officials. The change followed the Langford case, and in April Kalshi fined three more candidates who had bet on their own races and banned them for five years.
Whistleblower feature. Kalshi added a tool that lets users flag potential violations of trading rules directly from market pages.
Polymarket's New Rules
Polymarket took a broader approach:
Comprehensive insider trading ban. Polymarket rewrote its market integrity rules on both its global platform and its CFTC-regulated US exchange. The rules prohibit trading on stolen confidential information or illegal tips, and trading by anyone who can influence an event's outcome — athletes, company officials, policymakers, and others with that kind of access.
Multi-layered surveillance. Earlier in March, Polymarket announced a sports integrity platform for its US exchange built with Palantir and TWG AI, designed to screen traders against banned-bettor lists and flag possible insider trading or manipulation.
Enforcement measures. The rules spell out consequences for violations, which can include account suspension and referral to law enforcement.
Neal Kumar, Polymarket's chief legal officer, stated that the new rules "make our expectations abundantly clear for every participant across both platforms."
Are These Measures Enough?
Probably not on their own. The fundamental challenge with insider trading on prediction markets is structural: Polymarket's global platform runs on a blockchain with pseudonymous wallets. Even KYC-verified US platforms rely heavily on after-the-fact surveillance. Kalshi's IC360 screening gives it stronger pre-trade blocking for sports, but the political and geopolitical categories — where the Venezuela and Iran scandals occurred — remain harder to police. The cases that led to criminal charges in 2026 needed federal prosecutors, not just exchange rules.
The Bigger Picture: State Bills, Criminal Charges, and a Federal-State Showdown
The insider trading scandals and the Schiff-Curtis bill are only one front in a multi-front war over prediction markets. Here's how the broader regulatory landscape has developed.
Arizona Criminal Charges
On March 17, 2026, Arizona Attorney General Kris Mayes filed the first-ever state criminal charges against a prediction market operator: 20 misdemeanor counts accusing Kalshi of illegal wagering, including bets on college sports, individual player performance, and elections. Kalshi maintained that only the federal government can regulate its contracts.
The federal government stepped in. On April 2, the CFTC and the Justice Department sued Arizona, Connecticut, and Illinois. A federal judge in Phoenix halted the prosecution in April and turned that order into a preliminary injunction on May 5, ruling that federal law preempts Arizona's gambling statutes as applied to Kalshi. After the Ninth Circuit's August ruling against Kalshi in Nevada, Mayes has pushed to revive the case.
State Legislation
States moved on their own in 2026, with approaches ranging from outright bans to licensing and taxation:
- Kentucky enacted the first state tax on prediction markets in April: a 14.25% excise tax on platforms' transaction fees, passed over Governor Andy Beshear's veto along with a law barring sportsbooks from launching prediction-style markets.
- Utah enacted HB 243, which adds proposition bets to the state's gambling code; it took effect on May 6. Kalshi had already sued Utah officials in federal court.
- Hawaii lawmakers advanced a House bill that would classify event contracts on sports, politics, and other topics as illegal gambling.
- Illinois Senator Michael Hastings introduced a bill that would license prediction markets with a $1 million fee and a 50% privilege tax.
- New York lawmakers proposed direct restrictions through Assembly and Senate bills.
State regulators have also sent cease-and-desist orders to prediction market operators, arguing they function as unlicensed sports betting platforms; Missouri's attorney general joined them in October 2026.
For a complete breakdown of the legal situation by state, see our guide to prediction market legality.
The CFTC's Position
CFTC Chairman Michael Selig has taken the opposite stance from state regulators. On February 17, 2026, the CFTC filed an amicus brief in the Ninth Circuit asserting exclusive federal jurisdiction over event contracts, and in April it went further, suing three states alongside the Justice Department.
The agency is also writing rules. On March 12, CFTC staff issued an advisory reminding exchanges that anti-manipulation rules, including the ban on trading on misappropriated confidential information, apply to event contracts, and the Commission published an advance notice of proposed rulemaking (ANPRM). In June, it proposed replacing blanket bans with a contract-by-contract public-interest review. On October 9, it issued an interim final rule excluding casino-style gambling from the definition of a swap, along with a proposal that would bring event contracts within that definition. Our CFTC regulation guide explains how the agency oversees these exchanges.
The Trump administration broadly supports prediction market platforms — a position complicated by the fact that Donald Trump Jr. has invested in Polymarket through his venture capital firm, 1789 Capital, and serves as a strategic advisor for Kalshi.
MLB Partnership with Polymarket
On March 19, 2026 — four days before the Schiff-Curtis bill was introduced — Major League Baseball named Polymarket its exclusive Official Prediction Market Exchange. The deal gives Polymarket and its brokers access to MLB's trademarks and official league data, and both sides agreed to restrict integrity-sensitive markets such as individual pitches and umpire performance. MLB also signed a first-of-its-kind memorandum of understanding with the CFTC on sharing information about the integrity of baseball and related prediction markets.
The NHL has partnerships with both Polymarket and Kalshi. These league deals suggest that professional sports organizations see prediction markets as a legitimate fan engagement tool — a position that may shift if the Schiff-Curtis bill advances.
What This Means for Prediction Market Traders
If you're currently trading on prediction markets, here's the practical impact of everything above.
Your Sports Contracts Are at Risk — But Not Immediately
The Schiff-Curtis bill would end sports contracts on CFTC-regulated platforms if it became law. But it has not moved out of committee, and it would still need to pass the full Senate and the House and survive a likely veto, given the Trump administration's pro-prediction-market stance.
The more immediate risk comes from courts and states. After the Ninth and Sixth Circuit rulings, Nevada, Ohio, and Tennessee are free to enforce their gambling laws against Kalshi's sports contracts while those cases continue, and Kalshi faces litigation or enforcement in Arizona, Maryland, Massachusetts, and other states. Whether the Supreme Court takes up the issue will shape which markets are available where.
Non-Sports Markets Face Less Risk
Politics, economics, crypto, weather, culture — none of these categories are touched by the Schiff-Curtis bill, and the court fights are overwhelmingly about sports. Election contracts are not entirely in the clear: Arizona's charges include election bets, and some state bills reach politics. But if you primarily trade on Fed decisions, economic data, or crypto prices, the current proposals don't directly threaten your activity.
Tax Obligations Haven't Changed
Regardless of how regulation evolves, your tax obligations remain the same. Prediction market profits are taxable income, and you shouldn't count on a complete tax form: Kalshi, for example, issues 1099s for interest and rewards plus an annual profit and loss statement, but no 1099 for trading gains. Keep your own records. See our prediction market tax guide for detailed instructions on what to report.
Diversify Across Platforms
The regulatory landscape increasingly favors traders who maintain accounts on multiple platforms. If sports contracts are restricted on one platform due to a state-level ruling, another platform may still be operating while litigation is resolved. Our best prediction market apps comparison covers every major platform, fees, and availability.
Watch for Arbitrage Opportunities
Regulatory uncertainty creates pricing dislocations. When markets on one platform react to news about a potential ban while equivalent markets on another platform lag, arbitrage opportunities emerge. Traders who follow the regulatory story closely can capitalize on these temporary mispricings.
Timeline: How We Got Here
| Date | Event |
|---|---|
| January 2022 | CFTC fines Polymarket $1.4M and forces US exit |
| September 2024 | Federal court allows Kalshi to offer political contracts |
| July 2025 | Polymarket agrees to buy QCEX, a CFTC-licensed exchange, for $112M |
| October 2025 | ICE (NYSE parent) agrees to invest up to $2B in Polymarket |
| November 2025 | DraftKings and FanDuel quit the American Gaming Association |
| December 2025 | Polymarket's US app opens |
| January 3, 2026 | US forces capture Maduro; a Polymarket account's bets net about $400K |
| February 12, 2026 | Israel indicts two people over classified-info Polymarket bets |
| February 17, 2026 | CFTC files amicus brief asserting exclusive federal jurisdiction |
| February 25, 2026 | Kalshi discloses MrBeast editor and candidate cases; about 200 investigations |
| February 2026 | Tennessee federal judge blocks state enforcement against Kalshi |
| March 10, 2026 | Polymarket partners with Palantir and TWG AI on sports surveillance |
| March 11, 2026 | Blumenthal-Kim bill introduced |
| March 12, 2026 | CFTC staff advisory on manipulation; ANPRM on event contracts |
| March 17, 2026 | Arizona files criminal charges against Kalshi (20 misdemeanor counts) |
| March 17, 2026 | Murphy and Casar introduce the BETS OFF Act |
| March 19, 2026 | MLB names Polymarket its exclusive prediction market partner; signs MOU with CFTC |
| March 2026 | Point72 and Balyasny bar staff from prediction market trading |
| March 23, 2026 | Schiff and Curtis introduce the Prediction Markets Are Gambling Act |
| March 23, 2026 | Kalshi and Polymarket announce new insider trading rules |
| April 2, 2026 | CFTC and Justice Department sue Arizona, Connecticut, and Illinois |
| April 6, 2026 | Third Circuit sides with Kalshi against New Jersey |
| April 14, 2026 | Kentucky enacts 14.25% tax on prediction market fees |
| April 23, 2026 | Soldier charged over the Maduro bets |
| April 30, 2026 | Senate bars senators and staff from prediction market trading |
| May 5, 2026 | Federal judge blocks Arizona's prosecution of Kalshi |
| May 2026 | Google engineer charged over $1.2M in Polymarket bets |
| June 2026 | CFTC proposes contract-by-contract review of event contracts |
| August 28, 2026 | Ninth Circuit sides with Nevada against Kalshi |
| September 2, 2026 | New Jersey asks the Supreme Court to resolve the split |
| September 25, 2026 | Sixth Circuit sides with Ohio and Tennessee against Kalshi |
| October 9, 2026 | CFTC excludes casino-style gambling from swaps; proposes to cover event contracts |
What to Watch Next
Several open questions will shape the industry over the coming months:
The Supreme Court. With the Third Circuit on one side and the Ninth and Sixth Circuits on the other, New Jersey, Robinhood, and Crypto.com have asked the Supreme Court to decide whether federal law preempts state gambling laws for sports event contracts. A decision to hear the case — or to wait — would reshape the entire industry. The Fourth Circuit heard arguments in Kalshi's Maryland case in May.
The CFTC's swap rules. The October 9 interim rule and proposal are open for 30 days of public comment. If the CFTC formally defines event contracts as swaps, expect platforms to cite the rule in court and states to challenge it.
The Arizona case. Whether Arizona can revive its 20 misdemeanor counts after the Ninth Circuit's Nevada ruling will show whether criminal enforcement is a real threat to federally regulated exchanges.
Congress. The Schiff-Curtis bill, the Torres bill, and a proposal from Senators Todd Young and Elissa Slotkin to bar all federal officials and employees from betting on inside information are still pending. The Senate has already banned its own members and staff from trading event contracts.
More prosecutions. The Maduro and Google cases show federal prosecutors are willing to bring insider trading charges over event contracts. How those cases end will define the real-world risk of trading on inside information.
For users who want to understand how prediction markets work at a fundamental level before navigating this regulatory complexity, our pillar guide covers the mechanics, platforms, fees, and strategies in full.
Frequently Asked Questions
Are prediction markets going to be banned?
Not entirely. The Schiff-Curtis bill targets only sports contracts and casino-style games, and it hasn't moved out of committee. Politics, economics, crypto, weather, and culture markets are not affected by it. The bigger near-term risk for sports contracts is state enforcement: the Ninth and Sixth Circuits have let Nevada, Ohio, and Tennessee apply their gambling laws, and the Supreme Court may settle the question.
Is it still safe to trade on Kalshi and Polymarket?
Kalshi and Polymarket US are CFTC-regulated exchanges that keep customer funds in segregated accounts under federal oversight. Polymarket's global site is not CFTC-regulated and blocks new US trades. Regulatory risk is real, though — court rulings and state enforcement can cut off certain market categories in specific states. Monitor your state's legal status using our legal guide.
Can I get in trouble for insider trading on prediction markets?
Yes. Trading on misappropriated confidential information is prohibited by exchange rules and federal law, as the CFTC's March 12, 2026 staff advisory reminded exchanges. In 2026, federal prosecutors charged a US soldier over Polymarket bets on the Maduro operation and a Google engineer over bets on search data, Kalshi fined and banned traders and candidates, and Israeli authorities indicted two people over bets on military operations.
What does the Schiff-Curtis bill mean for DraftKings and FanDuel prediction markets?
DraftKings Predictions and FanDuel Predicts offer CFTC-regulated contracts and would be subject to the same restrictions if the bill passes. Sports contracts — the core of their prediction market offerings — would need to be removed. Both companies also operate state-licensed sportsbooks, however, so their traditional betting products would be unaffected.
How does this affect my taxes?
It doesn't change anything. Prediction market profits remain taxable income regardless of regulatory changes. See our tax guide for details on reporting.
Where is the prediction market industry headed?
The industry is at an inflection point. Trading volume hit about $63.5 billion in 2025 and has kept growing in 2026. Kalshi raised $1 billion at a $22 billion valuation in March 2026, and Bloomberg reported at the end of September that it was finalizing new funding at about $40 billion ahead of a planned IPO. But the legal environment is the most contested it has ever been. The most likely outcome is that non-sports prediction markets keep growing while sports contracts face a patchwork of state restrictions until the Supreme Court or Congress settles the question. For more context on industry trends, see our best prediction market apps hub page.
