US House calls for tighter prediction market rules following insider trading probe

Staff for the US House Committee on Oversight and Government Reform have urged Congress to consider restricting government officials from trading prediction market contracts related to government actions and political outcomes, following an investigation into potential insider trading.

In a November 13 memorandum, the committee said it had received nearly 1,700 pages of documents and communications and conducted five bipartisan briefings with platform representatives, legal counsel and employees responsible for detecting suspicious trading activity.

The investigation began on May 22 with Kalshi and Polymarket before expanding in September to include Hyperliquid Labs, Crypto.com and PredictIt.

According to the memorandum, four of the five platforms provided substantial documentation or briefings detailing their internal controls and surveillance systems.

Hyperliquid was the only platform that told the committee it did not “possess the types of records and information” requested concerning identity verification and Know Your Customer policies and procedures.

The committee also cited reports of a large leveraged short position on Hyperliquid established shortly before a US tariff announcement, describing the trading pattern as resembling potential insider trading.

Meanwhile, Polymarket has strengthened its surveillance capabilities through PolyGraph, a monitoring system developed in partnership with Chainalysis. The system combines blockchain analytics, social media intelligence, internal AI tools and other data sources to identify suspicious trading activity.

The memorandum highlighted several enforcement cases involving prediction markets, including a $1.2 million alleged insider trading scheme involving a Google engineer on Polymarket and CFTC penalties against former Congressman George Santos and a White House teleprompter operator involving trades on Kalshi.

Committee staff said existing insider trading laws apply to prediction markets but recommended additional restrictions on government personnel, lawmakers and congressional staff, regardless of whether they trade using confidential information.

“Government personnel should be restricted, at a minimum, from trading on contracts related to government actions or political outcomes,” the memorandum stated.

The committee also recommended improving information sharing between prediction market platforms and regulatory agencies to help identify and prevent insider trading.