Senators Propose Sweeping Oversight for Prediction Markets to Combat Fraud and Manipulation

U.S. Senator Richard Blumenthal has unveiled a comprehensive legislative proposal aimed at tightening regulation of prediction markets, seeking to impose new protections against fraud, insider trading and the participation of underage individuals on these rapidly expanding online platforms.

Joined by Senator Andy Kim, Blumenthal introduced the “Prediction Markets Security and Integrity Act,” a bill that would make it unlawful for both individuals and platform operators to use “material, nonpublic information” when placing wagers on event-based contracts. The legislation would also prohibit listings on these platforms that present conflicts of interest and would restrict contracts deemed vulnerable to manipulation or fraudulent activity, such as those tied to war, death or military action.

Under the proposal, operators of prediction markets would be required to verify the identities, ages and locations of their users. The bill would also ban platforms from targeting or advertising to individuals under the age of 21, as well as people with gambling disorders or addictions. Additionally, it would curtail the use of artificial intelligence in tracking individual wagers or in targeting promotional offers to users.

“Prediction markets have become a haven for insider trading, market manipulation, and underage gambling,” Blumenthal said in a statement. “These billion-dollar businesses are turning war into a casino game and creating a market for national security leaks.”

Blumenthal emphasized the intent of his measure: “My measure — the Prediction Markets Security and Integrity Act — puts guardrails on this out‑of‑control industry. It bans dangerous and unethical bets and protects consumers from fraud and other predatory practices.”

The bill characterizes prediction markets as providing “services that are substantially the same as betting, wagering, gambling and sports gambling,” a description that challenges the industry’s stance that these platforms operate more like derivatives exchanges than traditional gambling outlets.

In addition, the legislation would bar prediction markets from operating within any state unless they are authorized under a state wagering program approved by the state’s attorney general. That provision would shift regulatory control back to state authorities, setting up a potential conflict with the existing framework under the Commodity Futures Trading Commission (CFTC). The CFTC currently asserts that it has jurisdiction over derivatives markets, including prediction markets.

CFTC Chairman Mike Selig reiterated the agency’s position, stating last month that it maintains “exclusive jurisdiction over these derivative markets.” In February, Selig said, “Today, the CFTC is taking an important step to ensure that these markets have a place here in America and have the integrity and resilience and vibrancy that our derivatives markets deserve. To those who seek to challenge our authority in this space, let me be clear: We will see you in court.”

The push for greater regulation of prediction markets has gained traction in Washington amid rising concerns about insider trading and contracts linked to geopolitical developments, including wagers that hinge on potential U.S. military action in Iran.

Other members of Congress have also weighed in with legislative efforts aimed at limiting certain types of event contracts, including those tied to “terrorism, assassination, war, gaming (sports or athletic competitions), or illegal activity,” while a separate proposal seeks to prevent federal officials from trading in event contracts altogether.

Senator Chris Murphy has voiced particular alarm over bets placed shortly before U.S. hostilities with Iran, suggesting that individuals with insider knowledge may have profited from such wagers. “Nobody should be making bets on if the United States is going to war or what words President Trump is going to use in a speech,” Murphy said. “Those are fundamentally corrupt markets, because there are people on the inside who know the answer, and it perverts the decision‑making process.”

By fLEXI tEAM