Wall Street or Vegas? Prediction market in New York under scrutiny amid insider trading, gambling concerns

As prediction markets like Kalshi and Polymarket become more popular, lawmakers from New York City to Washington, D.C., are scrambling to create new rules against insider trading and reckless gambling. 

Their worries compounded when a Polymarket trader put $32,000 on the downfall of Venezuelan dictator Nicolás Maduro hours before President Trump announced he was captured by U.S. forces. The anonymous user made more than $400,000. 

Financial trading experts said it reeked of insider trading and they're worried it could keep happening. 

Traders or gamblers?

Currently, Polymarket users are guessing whether Mr. Trump will acquire Greenland this year or if Israel will strike Iran. On Kalshi, traders favor Vice President JD Vance as the next president and the Seattle Seahawks to win Super Bowl LX in February. 

The prediction market sites say their users are more suited for Wall Street than the Vegas Strip. They're financial traders, not gamblers, in their view, which makes a big difference when it comes to regulations. 

"Every time I feel lucky, I put some bets on there. I know it's not betting, but, I gamify it," said Zaid Abdulhadi, a Kalshi trader. "Even though they say they're different, they're closer to gambling than it is kind of an options trade." 

"We're dealing with a new animal"

The New York State Gaming Commission, which regulates gambling, sent Kalshi a cease and desist letter saying the company offers sports betting without a state license.

Kalshi responded with an ongoing lawsuit against the state, arguing it's a trading platform so only the Federal Commodity Futures Trading Commission has regulatory authority. 

"We're dealing with a new animal," said State Assemblymember Clyde Vanel. 

Vanel, a Democrat from Queens, introduced a bill to ban trading on many types of predictions, including sports and politics. 

"Whether it be the NBA or MLB, or what have you, there are charges against certain players that had certain behavior to affect a bet here and there, and that's just sports," Vanel said. "Imagine what happens in politics. Imagine that happens in policy to actually affect everyday people."

Political insider trading worries

While neither Polymarket nor Kalshi would agree to CBS News New York's request for an interview for this story, Kalshi sent a statement saying it already bans insider trading. 

"Kalshi explicitly prohibits insider trading of any form, including government employees trading on prediction markets related to government activity. We're looking at the specifics of the bill, but we already ban the activity it cites and are in support of means to prevent this type of activity. Market integrity is integral to the functioning of any US regulated exchange. Activity from the past few days has occurred on an unregulated exchange," Kalshi said.

Kalshi's CEO previously said he supports Bronx Democratic Congressman Ritchie Torres' federal bill to ban politicians from insider trading on prediction markets.

But that's already illegal, according to D.J. Hennes, with the accounting firm KPMG. 

"You're not allowed to use material, nonpublic information to trade in these markets. So there are regulations out there and it's about enforcing the rules on the books," Hennes said. "If you know something is going to happen through your job, your friend, whatever it may be, and you bet on that and the government finds out about it, you could be prosecuted. That's fraud." 

Polymarket did not respond when we reached out about this story. The company's terms of service ban any kind of fraudulent trading, but they do not specifically mention insider trading.  

Risky, even when used legally

Hennes said you should carefully consider your predictions, even when use of the platforms is perfectly legal, as certain details could cost you big bucks.

Traders who predicted Time Magazine would name "AI" as its 2025 Person of the Year won nothing, for example, when the magazine picked the "Architects of AI," instead.

Abdulhadi said he's careful not to spend too much money on prediction markets and that he's not quitting his day job on Wall Street.