A previously unreported bill introduced Thursday, led by Sens. Jeff Merkley, D-Ore., and Amy Klobuchar, D-Minn., would ban the president, vice president and members of Congress from trading event contracts — contracts that allow users to bet on the outcome of a specific event. The bill would also restrict senior executive branch officials from participating in prediction market activities and impose fines of at least $10,000 for violators.
“Members of Congress will receive all kinds of tips and advice,” Merkley said in an interview. "It is too difficult to actually demonstrate insider trading to adequately address the problem. The problem includes both actual corruption ... and the appearance of corruption and conflicts of interest."
The new legislation is unlikely to become law in a Republican-controlled Congress, but it could become a regulatory cornerstone for the nascent industry.
Prediction markets like Polymarket and Kalshi are growing in popularity, allowing users to place bets on the outcome of a wide range of events. Some are trivial, like basketball games and Best Picture Oscar winners. Others are more consequential, such as who will win a particular political election or whether the Federal Reserve will cut interest rates.
The platforms have come under intense scrutiny from lawmakers and regulators in recent months, especially after last weekend's U.S. attack on Iran that saw bets on the fate of Iranian leader Ayatollah Ali Khamenei appear on Polymarket, in which he was killed.
An NYT analysis of Polymarket activity in the lead-up to the Iran strike found a surge in trading volume for bets that a strike would occur the next day.
"There was a lot of suspicious new activity on Friday, with people making very specific bets that we're going to go to war with Iran on Saturday," Sen. Chris Murphy, D-Conn., said in a video posted by the X platform on Wednesday. Murphy has said he would introduce legislation that would ban transactions on government actions, though his office provided no information on a timeline Wednesday.
"Obviously, there were people close to Donald Trump who knew on Friday what was going to happen on Saturday. And it's very possible, even likely, that those who placed the bets were people with inside information," Murphy said. "We need to express strong disapproval of yet another new corruption scandal within the White House."
The White House did not respond to a request for comment Wednesday.
Even before bettors profited from the Iran attack, skepticism was growing within the Democratic Party.
Sen. Adam Schiff, D-Calif., joined five other Democratic senators in writing a letter to Commodity Futures Trading Commission Chairman Michael Selig urging him to ban event contracts involving bets on physical injury, death or war.
They cited recent bets on the possible explosion of a NASA spacecraft launch, Russia's invasion of Ukrainian towns and the fate of Maduro.
Activity surrounding the Iran strike has heightened Merkley’s concerns about prediction markets. But he first became suspicious after an anonymous Polymarket user made more than $400,000 by accurately predicting that the United States would invade Venezuela and overthrow its authoritarian leader.
"What happened in that case was that the secretary of state said, 'The reason we didn't notify Congress in the manner required by law is because we were too concerned about leaks,'" Merkley said. "So what you're talking about is an information that was extremely tightly controlled. It seems highly likely that someone in that small circle leaked the information to the people who were doing the trading."
Merkley said the bill was proposed in consultation with Kalshi. Kalshi, one of the world’s largest prediction markets, expressed overall support for federal regulation in a statement.
“We support action by Congress and regulators to regulate insider trading and keep prediction markets domestic and under federal regulation,” a spokesperson said in an email. “Policymakers have engaged with us over the past few months about what they are doing to ensure market integrity, and we are in discussions with many of them, including Senator Merkley.”
The proposal comes just days after a new trade group called Gambling Not Investing, led by former Trump White House chief of staff Mick Mulvaney, was formed to push states to impose stricter regulations on prediction markets.
But in Congress, at least so far, Republican lawmakers have not expressed support for Merkley or similar proposals, which means the new measure will be difficult to pass into law in the Republican-controlled Congress.
The bill introduced by Merkley and Klobuchar currently does not have any Republican co-sponsors. Schiff, along with Sens. Chris Van Hollen, D-Md., and Kyrsten Gillibrand, D-N.Y., have joined in support.
“While the prediction market is growing exponentially, we are also seeing an increase in reports of misconduct,” Klobuchar said in a statement. “This legislation strengthens the CFTC’s ability to target bad actors and establishes a code of conduct to prevent those with confidential government or policy information from exploiting its channels for financial gain.”
Rep. Rich Torres, D-N.Y., introduced similar legislation in the House of Representatives in January after news of Maduro's bets broke. His bill would prohibit elected officials and federal employees from making prediction market bets on government policies, government actions or political outcomes. The bill does not address enforcement issues.
"Every market has an insider trading ban, so why should prediction markets be exempted?" Torres said in a brief interview on Capitol Hill last month. “Prediction markets should be held to the same standards of integrity as the rest of the financial system, the rest of the economy.”
Torres' proposal has 41 Democrats and zero Republican co-sponsors, but he expressed confidence that Republicans will eventually join.
“My guess is that it will follow the same trajectory as the stock trading ban — starting out as a Democratic priority but becoming a bipartisan cause over time,” Torres said. "For me, it's not a question of if, but when. Prediction markets are facing increasing scrutiny, and banning insider trading seems to me to be a logical starting point."
Congress has yet to pass legislation banning lawmakers from stock trading.