Kalshi suspends users for violating its prohibition on trading of non-public information
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Kalshi is a prediction market that offers people the chance to risk money on the likelihood of events occurring. Photo: Thomas Fuller/NurPhoto via Getty Images
Prediction market Kalshi disclosed Wednesday that it had suspended two users it accused of violating its prohibition against "insider trading."
Why it matters: Prediction markets are under scrutiny over whether their platforms enable people with inside information to financially capitalize on their knowledge.
Driving the news: Kalshi — which said it's pursuing about a dozen active cases — revealed two enforcement actions:
- A person "who traded about $200 on his own candidacy for Governor of California, and then posted about it on social media" was banned for five years and received a financial penalty of "10 times the initial trade size," according to Kalshi head of enforcement Robert DeNault. The trader "recently announced he is no longer running for Governor and is now instead running for Congress," DeNault added.
- And "an insider who traded about $4,000 on YouTube streaming markets" received a two-year suspension and a financial penalty of five times the amount they traded.
Context: While "insider trading" is more commonly associated with securities markets, Kalshi uses the term to describe trading based on nonpublic information in violation of its exchange rules.
Zoom in: Kalshi did not identify either person by name — but California Republican Kyle Langford bragged in May that he bet on himself to be the next governor of California. He has since quit the race and launched a congressional campaign.
- Kalshi's DeNault said the company "immediately froze the person's account and opened an investigation" after the initial disclosure. "The candidate was initially cooperative and acknowledged that this violated the exchange rules."
- Langford's initial trade and call for supporters to also bet on him "boosted his odds from nil to almost 20% for a time," according to prediction markets expert Dustin Gouker.
"Tensions between the USA and Iran are at an all time high and the media has chosen to cover a $200 campaign gimmick (aka betting on I, myself) from last year, is this really the state of our political discourse?" Langford told Axios in an email.
In the YouTube streaming case, the person accused of insider trading had a "near-perfect trading success on markets with low odds, which were statistically anomalous," according to DeNault.
- Kalshi also received tips from users about unusual trading activity.
What we're watching: Whether enforcement actions like give regulators and elected officials the confidence that prediction markets like Kalshi are preventing insiders from abusing their platforms.
