Midwestern and Northeastern Governors Issue Joint Directive Restricting Public Servants' Involvement in Speculative Trading Platforms
In a bid to uphold the integrity of public service, New York Governor Kathy Hochul has issued a directive that prohibits state employees from participating in prediction markets, mirroring a similar decision made by Illinois Governor JB Pritzker earlier in the week. Hochul emphasized that profiting from confidential information is a clear case of corruption, and her administration is committed to ensuring that public officials prioritize the interests of their constituents over personal gain.
The governor's move comes amidst a surge in prediction market activity, with monthly trading volumes experiencing a seven-month consecutive uptick, reaching a record high of $23.6 billion in March. These markets cover a wide range of topics, including sports, elections, financial results, and cultural events. However, this growth has also been accompanied by rising concerns over insider trading and market manipulation, prompting governments to take action.
Hochul's directive specifically highlights instances of suspected insider trading, including a case where a Polymarket trader made a low-odds bet on the ousting of Venezuelan President Nicolás Maduro just hours before his capture by US forces, resulting in a profit of around $400,000. Another instance involved suspicious trades related to the invasion of Iran and the death of its Supreme Leader, Ayatollah Khamenei. The governor's order warns that any violations may lead to termination and law enforcement action, and also prohibits state employees from assisting others in profiting from confidential information through prediction markets.
Meanwhile, prediction market platforms are also taking steps to combat insider trading. For example, Kalshi banned a former California gubernatorial candidate who had placed a bet on his own candidacy last year. Although the politician was not named, details of the enforcement action suggest that it may have been Kyle Langford, a former Republican turned Democrat who is currently running for a seat in the US House of Representatives.
The latest directive from Governor Hochul is part of a broader effort by US states to regulate prediction markets. In October, the New York State Gaming Commission issued a cease-and-desist letter to Kalshi, accusing the platform of operating an unlicensed mobile sports wagering platform in the state. Kalshi is also embroiled in a court battle with the Nevada Gaming Control Board, which has argued that the platform's contracts facilitate unlicensed gambling. According to Coinbase's chief legal officer, Paul Grewal, this case could potentially reach the US Supreme Court, setting a precedent for the regulatory treatment of prediction markets and event-based derivatives.