By Michelle Price
WASHINGTON, March 5 (Reuters) - U.S. Democratic lawmakers Representative Mike Levin and Senator Chris Murphy are working on a bill to rein in prediction markets after well-timed bets ahead of the U.S.-Israeli air strikes in Iran stoked concerns over the legality and ethics of such trades, Levin told Reuters.
While the effort is unlikely to become law in the near future, it intensifies pressure on the likes of Polymarket and Kalshi amid growing concerns wagers on the platforms create
incentives to foment conflict and disclose classified information.
"Chris Murphy and I are working on this. It's unbelievably clear to me that if anyone is using prior knowledge of military action for financial gain that should be absolutely illegal," the California congressman said in an interview.
The Commodity Exchange Act bars event contracts that are deemed “contrary to the public interest,” including those involving war, terrorism, or assassination, but that law still gives prediction markets far too much leeway, said Levin.
On Wednesday, Polymarket removed bets on the likelihood of a nuclear explosion anywhere in the world after online backlash.
"There is no good way for people to be betting on war and death," said Levin, adding other Democratic lawmakers share his concerns and he hopes to build a coalition around the effort.
Last month, six other Democratic senators called out the platforms after a mystery trader made a roughly $410,000 profit betting on the ouster of Venezuelan President Nicolas Maduro.
On Saturday, analytics firm Bubblemaps flagged that six accounts made a $1.2 million profit from Polymarket bets on the ousting of Iran's Supreme Leader Khamenei just hours before he was killed in the air strikes.
Responding on X, Levin and Murphy said the trades suggested insiders were profiting from the war. Murphy added such trades should not be legal and that he planned to introduce legislation "ASAP."
Spokespeople for Murphy and Polymarket did not immediately respond to requests for comment.
A spokesperson for Kalshi said the platform bans and enforces against insider trading. "We also don't list markets directly tied to death."
Polymarket, which mostly operates overseas, has said prediction markets harness the wisdom of crowds to create accurate, unbiased forecasts.
(Reporting by Michelle Price, Editing by Nick Zieminski)
