Restrictions on Prediction Market Bets by US Troops Part of Draft Defense Bill
Restrictions on prediction market bets by US – A proposed defense policy bill could soon restrict US military personnel from engaging in prediction market betting, potentially limiting their ability to wager on global events. The initiative follows a notable incident involving a US special forces soldier accused of using classified information to place bets on the capture of Nicolás Maduro. This case has sparked discussions about the intersection of military duty and financial risk-taking, prompting lawmakers to consider regulatory measures.
Regulatory Measures Targeting Insider Trading
Released last week by the House Armed Services Committee, the draft bill includes a clause requiring Defense Secretary Pete Hegseth to establish regulations that would prohibit military personnel and Pentagon civilian employees from trading on prediction markets when they possess relevant “nonpublic information” or have the potential to acquire such data. The provision also mandates the development of a “range of punishments” for individuals who breach the rule. This could lead to disciplinary actions ranging from administrative reprimands to criminal charges, depending on the severity of the infraction.
For context, prediction markets like Kalshi and Polymarket have gained significant traction in recent years. These platforms operate similarly to commodity futures markets, allowing users to bet on the likelihood of specific events, such as political outcomes or economic shifts. Despite their popularity, many lawmakers argue that federal regulations have not fully adapted to the rapid expansion of the industry. Under current law, prediction sites for US-based users cannot offer markets on war, yet Polymarket’s offshore platform remains accessible to Americans via virtual private networks, offering dozens of war-related trading opportunities.
Insider Trading Allegations and Legal Implications
The recent case involving the soldier and Maduro’s capture led to the first known federal prosecution for alleged insider trading on prediction markets. The individual is reportedly accused of making $400,000 on Polymarket using classified information. While the soldier has not yet entered a plea, the incident has already drawn attention from the Department of Justice. Polymarket stated it referred the matter to the DOJ after identifying a user trading on classified government information.
Legal experts suggest that the bill’s provisions could mark a pivotal shift in how insider trading is addressed within the military. Eugene Fidell, a Coast Guard veteran and co-founder of the National Institute of Military Justice, told CNN that the draft “clearly contemplates” criminal punishment under military law for those who misuse nonpublic information. The Uniform Code of Military Justice allows for the prosecution of actions like disobeying orders or violating regulations, which could now include improper betting activities.
“The federal government should address prediction market insider trading issues as part of an overall strategy rather than piecemeal,” Fidell said. “This approach would ensure consistency and prevent isolated cases from setting precedent.”
Franklin Rosenblatt, a retired Army lawyer and professor at Mississippi College School of Law, echoed similar sentiments. He noted that while insider trading is already illegal under federal law in scenarios where traders have a duty to keep information private—such as military personnel—the draft bill expands this framework. The new rule would criminalize trading on even unclassified nonpublic information, such as betting on the outcome of a major defense contract before its official announcement.
Rosenblatt emphasized that the military could leverage existing legal mechanisms to prosecute improper betting. However, he also acknowledged the need for greater specificity in defining prohibited behavior. “It can’t hurt for military regulations to regulate with greater clarity what constitutes a violation,” he said. “This would help avoid ambiguity and ensure fair enforcement.”
Patterns of Suspicious Trades and Industry Concerns
Critics have raised alarms about recurring patterns of suspicious trades on prediction markets during significant geopolitical events. These instances include trades tied to the Maduro capture in April and subsequent bets related to US and Israeli strikes on Iran. Polymarket, which previously did not comment on the Iran strike-related bets, has been under scrutiny for its role in these cases.
The Commodity Futures Trading Commission (CFTC), the federal agency overseeing prediction markets, has pledged to intensify its efforts against insider trading. The Maduro case and a new case against a Google engineer for suspicious Polymarket bets indicate that the Trump administration is backing up its threats with concrete actions. However, bipartisan concerns persist about the CFTC’s capacity to rigorously monitor these platforms, given its current staffing levels.
Meanwhile, CNN’s partnership with Kalshi has provided the network with valuable data for covering major events, but editorial staff are prohibited from using prediction markets. This separation highlights the tension between media organizations’ use of such tools and the potential for military personnel to exploit them for financial gain.
Broader Implications for Military and Civilian Regulations
If enacted, the provision barring troop betting could have far-reaching consequences. While the bill may face challenges during its months-long legislative journey, its passage would signal a growing emphasis on preventing the misuse of sensitive information. Military officials and legal scholars are divided on whether this approach is sufficient or overly stringent.
Some argue that the expansion of insider trading regulations could deter service members from engaging in speculative activities that might compromise operational security. Others warn that the broad definition of “nonpublic information” could lead to overreach, penalizing actions that are not inherently malicious. As the defense bill moves forward, its success will depend on how effectively it balances accountability with flexibility for military personnel.
Ultimately, the debate reflects a broader conversation about the evolving role of prediction markets in modern finance and their potential impact on national security. With the industry’s rapid growth and the increasing availability of real-time data, lawmakers are grappling with the challenge of keeping pace with new risks. The draft bill’s provisions may serve as a starting point, but they will need to be refined to address the complexities of this dynamic landscape.
