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Congress Cracks Down on Kalshi and Polymarket as Dusty Johnson Pushes for Action

Quick Glance at the Facts

• Rep. Dusty Johnson, chairman of the House Agriculture Committee’s Commodity Markets, Digital Assets and Rural Development subcommittee, told a hearing today that Congress “should not be silent” on prediction markets.
• The House Oversight Committee opened an insider trading investigation into Kalshi and Polymarket in May, and at least three more insider trading cases have surfaced since, including a Google engineer charged with using internal search-trend data for $1.2 million in Polymarket profits, and a White House staffer whose Kalshi winnings were frozen.
• The House Administration Committee advanced the “Stop Lawmakers From Predicting Act” on a 5-4 party-line vote in June, and an industry-wide analysis of this year’s trading flagged roughly $200 million in wagers showing patterns consistent with insider trading.

Rep. Dusty Johnson chaired a subcommittee hearing on July 21, telling witnesses “I do not believe the committee, that Congress, should be silent; I do think there is work for us to do here,” per Legal Sports Report’s coverage. That hearing lands in the middle of an active insider trading investigation, a bill that already cleared committee, and a string of new cases in just the last month.

If you trade political or sports outcomes on Kalshi or Polymarket, the rules governing those contracts and the trust in the prices they generate are being tested from every direction at once.

Why This Is Happening

A contract’s price on these platforms is a real-time, crowd-sourced probability estimate; a contract trading at 60 cents implies roughly a 60% chance of that outcome. That only works if the price reflects the collective pool of traders’ beliefs, not what one trader privately knows, which is exactly what the current insider trading concern threatens.

A federal indictment alleged that Gannon Ken Van Dyke, a U.S. Army Special Forces master sergeant, used classified information about “Operation Absolute Resolve,” the real operation to capture former Venezuelan leader Nicolás Maduro, to turn roughly $33,000-$34,000 in Polymarket bets into more than $400,000. A separate New York Times investigation flagged over 80 Polymarket users placing suspiciously timed bets, including wagers made hours before undisclosed U.S. and Israeli strikes on Iran.

Since then, prosecutors have also charged a Google engineer, Michele Spagnuolo, with using internal search-trend data for roughly $1.2 million in Polymarket trades, and Kalshi froze about $90,000 belonging to a White House teleprompter operator, who the White House confirmed was suspended over the allegations.

Separately, a Wall Street Journal investigation reported Polymarket paid creators to run a fake-bets social media campaign, now also under CFTC review. An industry-wide look at this year’s trading flagged roughly $200 million in wagers showing similar red flags; this isn’t one bad actor, it’s a pattern.

The CFTC’s authority here comes from the Commodity Exchange Act, which lets it prohibit certain event contracts as “contrary to the public interest.” It has used that power twice: blocking NADEX’s political contracts in 2012, and blocking Kalshi’s congressional-control contracts in 2023. That second order didn’t survive, a federal court vacated it in 2024, ruling the CFTC exceeded its authority and that “Kalshi’s contracts do not involve unlawful activity or gaming. They involve elections, which are neither.”

Kalshi has offered those contracts ever since. Months before that ruling, the CFTC had also voted 3-2 to propose that gaming-related event contracts are contrary to the public interest as a category, doubling down on authority a court would go on to reject that fall. That’s the core tension: the CFTC keeps trying to police this on its own, keeps losing in court, and that’s a big part of why Rep. Johnson and others want Congress to settle it through legislation instead.

The Investigation and the Bill

The House Oversight Committee, chaired by Rep. James Comer, opened its insider trading investigation in May, demanding records from Polymarket CEO Shayne Coplan and Kalshi CEO Tarek Mansour on identity verification, geographic restrictions, and suspicious-activity detection. It’s still active, and the cases above give it plenty to work with.

A few weeks later, the House Administration Committee, chaired by Rep. Bryan Steil, released the “Stop Lawmakers From Predicting Act.” It would bar members of Congress, their spouses, and dependent children from trading contracts tied to government policy, government action, or a political outcome they learned about through their own congressional service, lawmakers could still bet on the Super Bowl, just not on their own legislative knowledge.

Penalties: a fee of $2,000 or 10% of the transaction, whichever is greater, plus any profit made. Roll Call reported the committee advanced it 5-4 along party lines, Democrats called it too narrow.

What Comes Next

Today’s hearing brought five witnesses before Johnson’s subcommittee, and they didn’t agree that Congress even needs a new law. Two derivatives attorneys, including a former CFTC general counsel, argued the CFTC already has the authority it needs. Gaming industry witnesses pushed back on sports prediction markets broadly, with the Indian Gaming Association’s chairman arguing flatly that “no one voted for this.”

Everyone agreed on one thing: the CFTC ordering Kalshi to keep fulfilling Michigan sports trades despite a court ruling against it was, as one witness put it, “certainly a flex.” Johnson closed by confirming this won’t be the last hearing on the topic.

Watch three things: whether the CFTC’s rule proposal firms up once its comment period closes, whether the covered-individuals bill gets a full House floor vote, and whether the Oversight investigation produces enforcement action against either platform directly. Also worth noting, CFTC Chairman Michael Selig is currently the agency’s only sitting commissioner, and lawmakers raised real concerns today about whether it has the staff and budget to actually do this oversight work.

GamblingNerd Take

A federal indictment, a $1.2 million insider trading case, a frozen White House staffer’s winnings, a fake-bets scandal, $200 million in flagged wagers, and now a hearing chaired by the lawmaker publicly pushing Congress to act, that’s an unusual amount of pressure converging on one industry in a single summer.

The bill in committee only covers lawmakers, but the real story is bigger: a prediction market only works if its price reflects the public’s collective uncertainty, and every case above is that uncertainty getting quietly replaced by someone’s private information. I’d watch the CFTC’s next move more closely than the covered-individuals bill, since it’s positioned to change what’s actually available to trade for everyone, not just the people currently under investigation.

For more on how implied probability actually works in betting markets, check out our Nerd Nook Hub.