Chairman Comer launches congressional probe into insider trading on Kalshi, Polymarket

Rep. James Comer, R-Ky., chair of the House Oversight and Government Reform Committee, announced Friday on CNBC's "Squawk Box" that he is seeking information from the CEOs of Kalshi and Polymarket on their efforts to prevent insider trading on their platforms.

Comer's probe is the latest in a series of congressional attempts to rein-in the platforms.

"Internal records held by prediction market platforms are the only means by which bad actors can be identified and to determine whether platforms are meeting their legal obligations," Comer wrote in a letter sent Friday to Polymarket CEO Shayne Coplan and seen by CNBC. A similar letter, also seen by CNBC, was sent Friday to Kalshi CEO Tarek Mansour.

"Therefore, the Committee requests documents and information to better understand how Polymarket implements identity verification for domestic and international account holders, enforces geographic restrictions, and detects anomalous trading activity to prevent insider trading across its global platform," Comer's letter continues.

Prediction markets like Kalshi and Polymarket have exploded in popularity and drawn increasing scrutiny from federal and state lawmakers and regulators. They allow users to place bets on the outcome of specific events in a variety of areas, including sports games, elections, awards shows and government actions.

Kalshi is headquartered in New York City and is regulated by the Commodity Futures Trading Commission. It does not allow users to place bets anonymously, a contentious feature of some other platforms, including Polymarket, that operate outside the U.S.

While Polymarket also has offices in the U.S., it's a blockchain-based platform run by an entity licensed in Panama. It has a limited U.S. product regulated by the CFTC, but its international operations are not overseen by U.S. regulators. 

Both companies earlier this year announced they were strengthening their own rules on internal insider trading after a series of dubious trades were made public.

Last month, a U.S. soldier was arrested for allegedly using inside information to place bets on Polymarket about the ouster of former Venezuelan leader Nicolas Maduro in January, netting roughly $400,000.

And more than 80 Polymarket users have made bets with suspicious characteristics, including trades placed hours before U.S. and Israeli strikes in Iran, according to a recent New York Times investigation.

"The rapid growth and mainstreaming of this platform, the cryptocurrency infrastructure, and the anonymity it affords users may have created unintended structural conditions that bad actors — especially individuals with national security clearances — can exploit," Comer wrote to Coplan.

Kalshi, meanwhile, says it does not allow event contracts related to war or death. But several political candidates have been caught betting on their own races on the platform. In April, Kalshi suspended three congressional candidates who wagered on their own candidacies. Comer cited those bets in his letter to Kalshi, as well as the company's expansion into more than 140 countries.

"The rapid global expansion of Kalshi's platform raises questions about whether internationally placed event contracts are subject to equivalent identity verification and insider trading prohibitions as domestic event contracts," Comer wrote.

Bipartisan members of Congress have introduced a flurry of bills this Congress to rein in prediction markets. Several deal specifically with the issue of insider trading, while others are broader and seek to root out other activity on the platform, including sports betting.

Comer's probe follows a letter from seven Democratic lawmakers, led by Rep. Chris Pappas of New Hampshire, that called on the Oversight Committee chair to subpoena the platforms. 

"The American public has a legitimate interest in knowing whether individuals entrusted with classified national security information have used that access for personal financial gain," the Democratic lawmakers wrote on May 11. "A committee investigation, enforced with subpoenas, will include internal records, which are the only means by which the individuals who conducted these trades can be identified and the question of whether these platforms are upholding their responsibilities can be answered."

In his letters, Comer requested documents and communications from both CEOs on how each company verifies identities, enforces geographic restrictions and detects unusual trades. Comer asked for all information transmitted by June 5.

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.