TL;DR: The CFTC touted last-minute enforcement wins at fiscal year-end while asking the White House to review two new “swap” definitions meant to shield prediction markets from state gambling suits, which states are winning 38-5. Congress widened its insider trading probe, and the CFTC is reportedly examining ex-Rep. Adam Kinzinger’s small Kalshi bets on his own pardon.
Key Takeaways:
The U.S. Commodity Futures Trading Commission (CFTC) is looking for loopholes to allow prediction markets to keep offering sports betting, while also putting a bullseye on a Trump foe suspected of insider predicting.
The CFTC’s fiscal year ended Wednesday, meaning it will soon release statistics on the number of enforcement cases it brought over the past 12 months, as well as the total value returned to investors who were the victims of illicit or flat-out illegal activity.
The Securities and Exchange Commission (SEC), which also wrapped up its fiscal year on September 30, was staring down what could have been the lowest enforcement case tally in its history. But a flurry of last-minute filings, many of which have been criticized as meaningless paperwork transgressions intended to mask the regulator’s lack of enforcement rigor, may have saved itself from that dubious achievement.
The CFTC has also been far more laissez-faire under chairman Michael Selig than under previous regimes, and it, too, announced some enforcement wins in the final week of its fiscal year. On September 25, the CFTC filed a complaint against Cash FX Group SA and The Conversion Pros, Inc., for allegedly operating a multilevel marketing Ponzi scheme that posed as a foreign currency contract trading business. The companies and their CEOs are accused of fraudulently soliciting and accepting over $950 million from individuals, including some U.S. residents.
On September 30, a federal court in Florida entered a default judgment against two individuals behind Fundsz, a defunct ‘passive income platform’ that claimed to be trading digital assets and precious metals. Fundsz board members Brian Early and Alisha Ann Kingrey were found guilty of making material representations and omissions regarding the platform’s expected profits, risks, and historical trading performance.
The court ordered Early and Kingrey to pay $15.7 million in restitution to the over 9,000 investors who lost money via the pair’s misrepresentations. The court also imposed a $15.7 million civil monetary penalty on the pair.
Fundsz founder Rene Larralde, who died in 2023, was found similarly guilty of misappropriating investor funds. His estate was ordered to fork over the keys to a property purchased with ill-gotten gains, as well as $2.7 million worth of other assets similarly acquired with investors’ money.
It’s worth noting that the complaint against Fundsz was filed in 2023, aka under the Biden administration, when Rostin Behnam was CFTC chairman. So while the current CFTC leadership will claim these scalps as their own, they were only the beneficiaries of others’ work.
CFTC seeks new rules after federal court hands prediction markets another L
Behnam recently gave an interview to Crypto in America in which he discussed the ongoing efforts by the CFTC and SEC to loosen regulatory guardrails governing digital assets following last month’s failure of the Senate’s digital asset market structure bill (the CLARITY Act).
Behnam said the present mindset of “the administration and even some in the industry is that like, okay, legislation’s done. We’re going to turn to the agencies and the agencies will move forward.” But regulations absent legislation can be undone by future administrations that appoint their own regulatory chiefs, leaving the current rulemaking efforts “a little bit like scotch tape and paper clips.” The net result is that companies remain uncertain about “how much do we invest in this set of rules.”
Enter the CFTC, which this week sent a proposed rule to the White House’s Office of Information and Regulatory Affairs (OIRA) regarding a Further Definition of ‘Swap’ to Exclude Casino-Style Gambling Products. The CFTC sent a second proposal regarding a Further Definition of ‘Swap’ to include Event Contracts.
Neither of these proposed rules is visible, so we can’t know what’s in them beyond their titles. But they reflect the CFTC’s fervent desire to insulate prediction markets from legal challenges by state-level authorities that oppose these platforms offering sports-based ‘event contracts’ that states consider sports betting by another name.
Sites like Kalshi and Polymarket operate as CFTC-registered ‘designated contract markets’ (DCMs), and they claim that this federal stamp of approval renders them impervious to state-level oversight. This view has been challenged by state attorneys-general—New York’s AG charged Polymarket with illegal gambling just last week—given that states have long held exclusive authority over what type of gambling products are permitted within their borders.
While the CFTC has legally gone to bat for prediction markets in nine states (so far), the current unofficial nationwide tally of the states v prediction market fight stood at 38-5 as of late September, an 88% success rate for the states.
One of the more recent defeats came via the U.S. Sixth Circuit Court of Appeals, which ruled against Kalshi’s bid to dismiss challenges brought by authorities in Ohio and Tennessee. The three-judge panel unanimously rejected Kalshi’s claim that its sports contracts are swaps, adding that Kalshi’s overly broad definition of swap would make it a crime to engage in any gambling product not hosted on a DCM.
Similar rulings in other federal courts have agreed that the prediction markets’ expansive swaps definition could encompass ‘casino-style gambling’ products. That exact phrase has been used by tribal and commercial casino operators to challenge prediction markets’ efforts to offer sports betting to state residents without a state gaming license.
While the CFTC’s proposed swaps definitions could spark fresh litigation, the CFTC is trying to get ahead of this controversy before it reaches the U.S. Supreme Court, which could take up the matter in its next term, which starts next week. A defeat there would be crushing for prediction markets, as sports ‘events’ continue to account for a majority of ‘predicting’ volume.
Congress expands prediction market insider trading probe
Prediction markets have long dealt with ‘insiders’ using privileged information to make major bank off specific event contracts. Some of these are more serious than others, like a member of the U.S. military betting on when the U.S. might remove the leader of a foreign government. Lesser controversies include former Rep. George Santos (R-NY) betting on whether or not he’d attend a State of the Union address.
On September 29, the House of Representatives’ Committee on Oversight and Government Reform announced that it continues to “investigate the use of online prediction market platforms by some users to conduct insider trading using non-public or classified government information.”
The Committee launched its investigation in May following a growing number of reports of the rampant insider trading occurring on prediction markets. The Committee said this week that it has received “nearly 1,000 documents and five briefings” from Kalshi and Polymarket representatives.
This week, Committee chair James Comer (R-KY) sent letters to the CEOs of Aristotle Exchange (aka PredictIt), Crypto.com, and Hyperliquid Labs, “requesting documents and information to better understand how they implement identity verification procedures for account owners and identify and prevent insider trading on their platforms.”
Comer said the point of the probe was to determine “whether these platforms are fulfilling their legal obligations and doing enough to identify and prevent insider trading before it happens.” (Short answer: no.) Among the prediction procedures being put under the microscope are “how they verify users’ identities and geographic locations and detect suspicious trading activity.”
While the letters are largely similar, the Hyperliquid letter seeks info on “a substantial leveraged short position on the Hyperliquid platform within minutes of a presidential announcement concerning a U.S. tariff policy in October 2025 that was not publicly known at the time the position was established.”
The Crypto.com letter asks whether “employees, contractors or affiliates” had placed any event wagers regarding the exchange’s “corporate actions including digital asset listing or delisting decisions, liquidity or custody decisions and token-related decisions.”
All three parties have been asked to submit their responses by October 13.
Trump foe in CFTC’s sights
The Committee’s probe may have prompted Kalshi to report a specific allegation of political insider trading to the CFTC, which appears to have piqued the CFTC’s interest, likely because it involves a former political opponent and fierce critic of President Trump.
Former Rep. Adam Kinzinger, an Illinois Republican, has admitted placing less than $1,000 worth of wagers on Kalshi markets, including one asking ‘Who will [former President Joe] Biden pardon?’ Kinzinger was among those who received pardons from Biden as the former president left office in January 2025.
But Kinzinger told Politico that while he made $823 from his Kalshi wagers, he didn’t have any insider scoop on whether or not his pardon was forthcoming. Kinzinger said he placed “25 or so” trades in total, most of which ended up losers.
Kinzinger added that at the time he placed his bets, “I was not a congressman or candidate, and had been out of office for two years.” After checking Kalshi’s rules before making his wagers, Kinzinger “felt confident” that he wasn’t breaking any rules, “because I had never had a conversation with anyone about [the pardons], much less anyone anywhere near the White House.”
Kinzinger told CNN that “it was a dumb bet, to bet on myself. Looking back, I’m like, yeah, I wish I’d have skipped it. But everything I saw at the time was like, you’re within your right to bet on this.”
Ironically, Kinzinger published a Substack post a year ago in which he called Kalshi “a corruption time bomb” and called on Congress to “regulate this space immediately and aggressively, or better yet, ban political behavior markets outright.”
Given Kinzinger’s public advocacy and name-calling, Kalshi might well have had its own incentives to dig into what bets the former representative placed on their platform. A CNN source claimed Kalshi attempted to contact Kinzinger before notifying the CFTC, possibly to establish whether this admittedly minor wager was based on any insider dope. But Kinzinger claimed to have ‘never heard’ from the platform.
Regardless, the CFTC has reportedly sprung into action, eager to determine whether charges can be brought against Kinzinger, who voted to impeach Trump in 2021 and later served on the House select committee that investigated the January 6, 2021, attack on the U.S. Capitol in Washington. Trump previously stated that all committee members “should go to jail” and called Biden’s pardons “void.”
FAQs:
What did the CFTC announce at fiscal year-end?
The CFTC announced several enforcement wins in its final week, including a $950 million alleged Ponzi scheme complaint and a default judgment against Fundsz executives. Full annual enforcement statistics are expected soon.
Who has to pay in the Fundsz case?
Board members Brian Early and Alisha Ann Kingrey must pay $15.7 million in restitution to over 9,000 investors, plus a $15.7 million penalty. Founder Rene Larralde’s estate must surrender property and $2.7 million in assets.
Why is the CFTC proposing new swap definitions?
The CFTC wants to shield prediction markets from state-level challenges related to sports betting. One proposal excludes casino-style gambling from “swap,” and the other includes event contracts. Neither is public yet.
What is Congress investigating?
The House Oversight Committee is probing insider trading on prediction markets using non-public government information. Chair James Comer sent letters to PredictIt, Crypto.com, and Hyperliquid Labs, with responses due October 13.
Why is Adam Kinzinger under CFTC scrutiny?
Kalshi reportedly flagged his bet on whether Biden would pardon him. Kinzinger says he made $823, had no inside information, and called the bet “dumb.”
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