Members of the U.S. military and civilian employees at the Pentagon could soon face restrictions on using prediction markets under a draft defense policy bill moving through Congress.
A provision included in draft legislation released by the House Armed Services Committee would require Defense Secretary Pete Hegseth to establish rules prohibiting members of the armed forces and Pentagon civilian personnel from trading on prediction markets when they possess relevant nonpublic information or could reasonably obtain such information. The proposal also calls for the development of a range of penalties for violations.
The initiative comes as prediction market platforms such as Polymarket and Kalshi have seen rapid growth in trading activity tied to political, economic and geopolitical events. While these markets are regulated as commodity futures in the United States, lawmakers and regulators have increasingly raised concerns that existing rules have not kept pace with the industry's expansion, according to CNN.
The most emblematic case involves U.S. Army Special Forces Master Sgt. Gannon Ken Van Dyke, who has been charged with allegedly using classified information related to a U.S. operation that resulted in the capture of Venezuela's authoritarian President Nicolas Maduro in January.
Authorities alleged that Van Dyke used advance knowledge of the mission to place bets on Polymarket contracts tied to Maduro's removal from power and earned more than $400,000. Van Dyke has pleaded not guilty. The case marked the first known federal prosecution involving alleged insider trading on a prediction market.
Federal prosecutors alleged that Van Dyke participated in planning and executing the operation before placing wagers through Polymarket's offshore platform, which U.S. users can access through virtual private networks.
The draft legislation expands beyond classified intelligence by targeting the use of broader categories of nonpublic information. Legal experts told CNN that the language could cover information that is not classified but remains unavailable to the public, such as details about military contracts or operational decisions.
Observers have pointed to suspicious market movements before the Maduro operation and during recent military actions involving Iran. Those concerns have intensified scrutiny of prediction markets, particularly contracts linked to wars, military operations and diplomatic developments.
The CFTC has already signaled a tougher enforcement approach. In February, the agency's Division of Enforcement issued guidance highlighting investigations involving misuse of nonpublic information in event-based contracts and warning market participants against improper trading practices, according to the Commodity Futures Trading Commission.
Federal authorities have also widened their focus beyond government insiders. Last week, prosecutors charged a Google software engineer with allegedly using confidential company data to generate more than $1.2 million in profits through Polymarket bets, according to Reuters. The case followed the military prosecution and further demonstrated the government's willingness to pursue insider trading allegations involving prediction markets.
Meanwhile, companies operating prediction markets have taken steps to strengthen oversight. Kalshi recently hired former FBI official Tyler Neff for its surveillance unit as scrutiny from lawmakers and regulators continues to increase, according to Reuters.
The Pentagon proposal is not yet law and remains part of the broader annual National Defense Authorization Act process, which typically undergoes months of debate and amendment before reaching final passage. However, the inclusion of the provision reflects growing concern in Washington about the potential misuse of sensitive government information in rapidly expanding prediction markets.
Recent restrictions elsewhere in government point in a similar direction. The Senate has already prohibited members from participating in prediction markets, while some House offices have imposed similar limitations on staff. Governors in California and Illinois have also signed orders barring state employees from using insider information on prediction market platforms.
