A week after the Dec. 4 murder of UnitedHealth Group Inc. executive Brian Thompson, Americans found themselves able to place bets on the legal fate of his alleged killer, Luigi Mangione, via Kalshi Inc., a New York-based exchange that allows retail traders to wager on various events. The contracts, which debuted on Dec. 11, included predictions on Mangione’s extradition to New York, whether he acted alone, and whether he would plead guilty or be convicted.
However, trading abruptly ceased two days later following regulatory intervention. Kalshi informed its customers that it halted trading after receiving a notice from regulators, according to messages reviewed by Bloomberg News. Neither Kalshi nor the Commodity Futures Trading Commission (CFTC), which oversees Kalshi, provided comments on the matter. The CFTC prohibits futures trading linked to crimes like assassinations and terrorism when deemed against public interest.
This incident highlights the ethical and regulatory dilemmas posed by the growing industry of event-based contracts, which allow betting on real-world events. Critics argue that such contracts, especially those tied to sensitive or tragic events, veer far from legitimate economic purposes like risk hedging.
Cantrell Dumas, a derivatives policy expert at Better Markets, a financial policy think tank, remarked, “It’s pure gambling. We’re talking about betting on the outcome of a murder case, reducing human tragedy to a financial speculation.”
Unregulated Exchanges Continue to Operate
While Kalshi paused trading, unregulated platforms like Polymarket continued offering similar contracts. Polymarket, a crypto-based platform that claims to bar U.S. users, operates outside the CFTC’s jurisdiction. At a Dec. 23 court hearing, Mangione pleaded not guilty, with his attorney raising concerns about the influence of public commentary on his trial’s fairness.
Legal and Regulatory Challenges
Kalshi’s recent controversy echoes the broader legal battle over prediction markets. Earlier this year, the CFTC sought to block Kalshi from offering election-related contracts, only to face a legal setback when a U.S. appeals court permitted the contracts to proceed. The court is still deliberating the agency’s authority to impose permanent bans on such offerings.
The regulatory tension underscores a loophole in the approval process for event contracts. Exchanges like Kalshi can self-certify contracts and launch them within a day, leaving the CFTC limited time to intervene. “There’s no 10-day review period like the SEC has,” Dumas pointed out. “Once self-certified, these contracts can immediately go live.”
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A Growing Market Amid Controversy
The popularity of event contracts is growing, with platforms like Robinhood and Interactive Brokers launching election-themed trading earlier this year. Observers anticipate a surge in self-certified offerings in the coming years, posing further challenges for regulators.
Betting on criminal trials isn’t new. In the 1990s, a UK bookmaker attracted significant interest by allowing bets on the O.J. Simpson trial, although some competitors refused to participate out of ethical concerns.
Future of Prediction Markets
The CFTC’s approach to regulating these markets may shift depending on future leadership. Brian Quintenz, a former CFTC commissioner and current policy lead at Andreessen Horowitz’s a16z crypto, is a potential contender to lead the agency. Under his leadership, the CFTC might adopt a more lenient stance on event contracts.
For now, the unresolved tension between free-market innovation and ethical considerations continues to dominate discussions about the future of prediction markets.