Perez Settlement Reveals a Gap in Prediction Market Enforcement

Gabriel Perez sat in a White House briefing room with access to the President's prepared remarks before anyone outside that room had read them. He then traded 43 contracts tied to how many times Donald Trump would mention specific words or topics. He profited on 39 of them. The CFTC settled with him for $172,000, of which $107,539 was disgorgement of the profits themselves. The rest was penalty. The case closed.

The Santos settlement ran to $35,000. Santos had posted a video confirming he would attend the State of the Union, placed bets on his own absence, then posted a second video explaining he had missed his flight. The CFTC called it a day at five figures. No criminal referral in either case.

What strikes me about these two settlements, read together, is not the leniency in isolation. Regulators have always reserved prosecution for the cases worth prosecuting, and both of these were small enough in dollar terms that a long enforcement action would cost more than it recovered. What strikes me is the signal they send about where the CFTC's enforcement ceiling sits, at the exact moment the agency is arguing before federal courts that it should be the sole regulator of prediction markets nationally.

The preemption argument, which the Ninth Circuit has now effectively rejected for sports contracts while sending the election market question back down, rests on a version of federal supremacy. Kalshi's position is that a single federal regulator with a unified rulebook produces better outcomes than 50 state gaming boards applying inconsistent standards. That argument is coherent. I have found it persuasive in parts. But its credibility depends entirely on the federal regulator actually regulating.

When CFTC Director of Enforcement David Miller said in April that the agency would aggressively prosecute trades involving misappropriated information, the Perez and Santos outcomes were already in the pipeline. Perez walked away having kept nothing and paid a fine he could, presumably, manage. Santos, who has a demonstrated history of fraud and served three months of a seven-year sentence before a presidential pardon, paid $35,000. Kalshi, which has no obligation to be lenient, issued a lifetime ban from its own platform. The private company drew a harder line than the federal agency whose mandate covers exactly this.

I have watched enforcement gaps like this one in other regulated markets. The pattern is consistent: when a regulator signals willingness to settle quickly and cheaply, the cases that never come forward are the ones that should. The $107,000 Perez made is not the number that matters. The number that matters is what the next person with advance access to a prepared statement now believes the downside looks like.

Kalshi is simultaneously fighting for its survival as a federally regulated exchange against a Nevada Gaming Control Board seeking $120,000 a day in contempt penalties, and banning individual bad actors more aggressively than its own regulator. That is a strange position to occupy. It suggests a company that understands its legitimacy depends on conduct standards the CFTC has not yet matched.

The prediction market ETF queue now runs to 128 funds awaiting SEC approval. Institutional capital is positioned to move into this space at scale. If the enforcement framework arriving with it looks like the Perez and Santos settlements, the 44 state attorneys general pressing for state-level oversight will have an argument that is very difficult to answer.