Kalshi has closed two cases regarding the company’s prediction markets platform regarding insider trading. The company imposed multi-year trading bans and fines in both cases.
Tarek Mansour, Kalshi’s Co-founder and CEO, announced the news in a LinkedIn post on 25 February in the wake of concerns over insider trading on prediction markets.
The first case involved a political candidate who made trades worth $200 in contracts regarding the candidate’s own candidacy for Governor in California. The candidate later went public with the trades on social media.
Kalshi’s investigation concluded that the unidentified candidate violated multiple company rules regarding trading in the markets. The individual has now announced that he is withdrawing from the race for Governor in California to run for Congress.
The company imposed a five-year trading ban and fined the candidate ten times the original amount.
The second case involved one of the company’s insiders trading approximately $4,000 in markets regarding YouTube’s streaming metrics.
The company’s investigation concluded that the insider violated the company’s insider trading rules. The insider received a two-year trading ban and a financial penalty equal to five times the original amount.
The company’s compliance team collected evidence in both cases before determining that there were sufficient grounds to establish the violation of the company’s rules.
It explained that it worked with law enforcement officials before imposing the trading bans.
Kalshi acknowledged that no financial exchange is immune to such cases. The company is committed to the detection and prevention of such cases.
CFTC confirms Kalshi intervention
In a separate announcement, the Commodity Futures Trading Commission (CFTC) confirmed the intervention actions taken by Kalshi.
It noted that although Kalshi addressed the incidents through its internal compliance programme, the Commission retains full authority under the Commodity Exchange Act to pursue unlawful trading on any designated contract market, including prediction markets.
The CFTC outlined the scope of the practices within the scope of the CFTC’s authority. The practices include the misappropriation of confidential information in violation of a duty of trust, or insider trading, in violation of the Commodity Exchange Act and federal regulations.
Other practices within the CFTC’s authority include the prohibition of pre-arranged, non-competitive trading and the prohibition of wash trading in violation of regulations.
In addition, the CFTC cited disruptive trading practices in violation of Section 4c(a)(5), as well as anti-fraud and anti-manipulation provisions in violation of several provisions of the Commodity Exchange Act.
The CFTC cited past enforcement actions to illustrate the application of these provisions in the past.
The dual enforcement actions underscore the dilemma faced by exchanges in balancing the need to monitor participant behavior with the desire to expand into politically and socially relevant markets.
The dual matters have now been closed with the imposition of sanctions.
Kalshi requests TRO in Utah legal battle
In a separate matter, Kalshi is involved in federal litigation in the state of Utah, and recent filings shed light on the status of the company’s federal lawsuit.
Kalshi has filed for a Temporary Restraining Order (TRO) in Utah just a few days after filing a complaint that initiated its lawsuit against Utah officials.
Kalshi filed a complaint on 23 February that initiated the lawsuit against the Utah officials. This is a federal lawsuit based on federal pre-emption and the Supremacy Clause.
Kalshi has requested a declaratory judgment and a permanent injunction in its lawsuit. This is asking the court to ultimately rule that the Utah officials’ actions are in violation of federal law.
The TRO would remain in effect while the lawsuit is pending, along with the request for a preliminary injunction.