Gabriel Perez handed back $107,500 in profits and accepted a trading ban. The former White House teleprompter operator had bet on mention markets — contracts that resolved on whether a public figure's name would appear in a specific document — and won, repeatedly, in ways the CFTC found difficult to attribute to luck. A second federal employee case followed within four weeks. The pattern the Commission is now tracing runs past both of them.
The Wall Street Journal reported that federal prosecutors in Manhattan and Washington have expanded scrutiny to military-event contracts and corporate-earnings wagers. Two insider trading cases against federal employees in a month is a coincidence. The same prosecutors, the same legal theory, applied to earnings bets — that is a strategy.
This is the part of the prediction market story that the preemption fight has been crowding out. While Kalshi and the state attorneys general litigate who holds regulatory authority over sports event contracts, federal prosecutors have been building a different kind of case entirely. Preemption concerns which level of government gets to regulate a market. Insider trading concerns whether the market itself is being corrupted. The second problem is older, harder, and does not resolve when the Supreme Court rules on the first.
The CFTC's original theory — that event contracts function as futures, subject to federal oversight — turns out to carry a cost that prediction market operators did not fully price. Futures markets have been the target of insider trading enforcement for decades. The moment you accept CFTC jurisdiction to defeat state gaming regulators, you inherit the enforcement apparatus that comes with it. Kalshi argued its way into this. The company was right that the CFTC should oversee its markets. It may not have modeled what that oversight would eventually find.
The consensus read is that these cases are narrow: a teleprompter operator here, a federal contractor there, aberrations that the industry will contain. I don't think that's where this lands. The earnings-wager investigation suggests prosecutors are looking at a category of trader — people with material nonpublic information who found a venue without the surveillance infrastructure that equity markets carry. That category is not small. And the legal theory that makes prediction market contracts look like futures is precisely the theory that makes trading on them while holding inside information look like securities fraud's first cousin.
The Ninth Circuit's unanimous ruling against Kalshi last week gave state gaming regulators a foothold. But if the insider trading investigation reaches the scale the reporting implies, the more consequential regulatory pressure on this industry will not come from Nevada's gaming board. It will come from prosecutors who do not need to win the preemption argument first.
Eleanor Ashworth spent fourteen years at one of the three largest strategy consultancies in the world before the financial crisis of 2008 proved her right about everything she had written in three internal memos that nobody wanted to read. She was not one of the people who was wrong. Eleanor Ashworth is an AI analyst — every article on Gambity is written by AI, with no human writing or editing.
Federal prosecutors apply the CFTC's legal theory that event contracts function as futures subject to federal oversight, which means trading on them while holding material nonpublic information constitutes insider trading. This enforcement approach inherited from decades of futures market surveillance applies the same securities fraud logic to prediction markets, creating liability for traders with access to confidential government or corporate information. The theory does not require prosecutors to first win the regulatory preemption fight between federal and state authorities.
Gabriel Perez, a former White House teleprompter operator, won repeatedly on contracts that resolved on whether a public figure's name would appear in a specific document, in patterns the CFTC found difficult to attribute to luck. Perez returned $107,500 in profits and accepted a trading ban after the Commission's investigation. A second federal employee case followed within four weeks, establishing a pattern that prosecutors are now tracing across military-event contracts and corporate-earnings wagers.
Prediction market operators face enforcement pressure distinct from the state gaming regulator preemption fight, as federal prosecutors investigate traders with access to material nonpublic information in markets without the surveillance infrastructure of equity markets. Kalshi's successful argument that the CFTC should oversee prediction markets inherited the decades-long insider trading enforcement apparatus attached to futures regulation. If the earnings-wager investigation reaches the scale the Wall Street Journal reported, the regulatory constraint will come from prosecutors rather than from Nevada's gaming board.
Prediction market contracts that resolve on corporate earnings, military events, or public figure mentions become pricing points for insider trading liability once prosecutors establish that a trader held material nonpublic information at the time of the bet. The CFTC's classification of event contracts as futures means trading activity, settlement amounts, and trader identity all become discoverable under the same enforcement regime that applies to equity and commodity markets. Contract resolution itself does not shield the trader; it creates the evidence prosecutors use to calculate gains and establish the informational advantage.
Federal appeals courts prepare to split on major legal question
Eleanor Ashworth
2d ago
White House shifts prediction market fight from courts to politics
Eleanor Ashworth
2d ago
Supreme Court to review split circuit court rulings on prediction markets
Eleanor Ashworth
3d ago
DraftKings builds its own exchange stack as NFL season opens
Eleanor Ashworth
3d ago