A new legislation to limit the interactions between government officials and the prediction markets is being supported by more than 30 Democrats in the U.S. House of Representatives, including former Speaker Nancy Pelosi.
The lure behind new restrictions is a controversial Polymarket bet, which started as a bet of $32,000 but eventually became more than $400,000 shortly before the unexpected detention of Venezuelan President Nicolás Maduro.
The bill proposed by the New York Representative Ritchie Torres is the Public Integrity in Financial Prediction Markets Act of 2026.
Torres explained that the bill came about because there was a new Polymarket account that had made a big bet on Maduro being ousted by the end of January 2026, when market odds said that the event was exceptionally unlikely to happen.
Several hours later, the U.S. officials stated that Maduro and his wife, Cilia Flores, were arrested in an overnight raid that was coordinated by the Trump administration.
The contract soon repaid it within the maximum payoff, producing yields of over 1,200%. Subsequently, concerns have been raised by lawmakers and market analysts that the trade might have been pegged on material nonpublic information.
Torres claimed that the episode revealed a loophole in federal legislation when prediction markets occur in mass and power, especially when they touch on major political or military judgments.
Lawmakers Seek to Close Insider Trading Loopholes in Prediction Markets
Under the proposed legislation, federally elected officials, political appointees, executive branch employees, and congressional staff would be barred from buying, selling, or trading prediction market contracts linked to government policy, actions, or political outcomes.
The bill does not introduce new penalties but seeks to clearly extend existing insider trading standards to prediction markets, which currently operate in a fragmented regulatory environment.
Torres explained that the convergence of government activity and prediction markets represents a definite public integrity hazard, and officials cannot be put in a situation where they are able to financially gain as a result of the impacts they may have.
Similar anxieties were expressed by legal writers and economists, who argued that insider trading distorts and diminishes market confidence and lowers the utility of prediction markets as forecasting instruments.
The legislation is co-sponsored by a wide coalition of House Democrats, including Pelosi, Rashida Tlaib, Brad Sherman, Seth Moulton, and several other senior lawmakers.
Supporters say the bill builds on the principles of the STOCK Act, which governs insider trading by members of Congress in traditional financial markets, while updating those rules for newer financial instruments.
Prediction Markets Expand Rapidly as U.S. Policy Shifts
The move comes as prediction markets have expanded rapidly, with the combined trading volume across major platforms exceeding $44 billion in 2025, with weekly notional volume surpassing $5 billion in early January 2026.
Political events, particularly elections and geopolitical flashpoints, have become some of the most heavily traded markets.
At the federal level, prediction markets have shifted from an outright ban to a more permissive stance following a series of court rulings.
In 2024, a federal court ruled that the Commodity Futures Trading Commission had overstepped its authority by blocking election-related prediction contracts, a decision later upheld on appeal.
Earlier enforcement actions had pushed platforms out of the U.S. market, with Polymarket blocked in 2022 after settling with the CFTC over operating an unregistered platform.
Meanwhile, Kalshi was also prevented from listing election contracts in 2023 despite operating as a regulated exchange.
The CFTC dropped its challenge in 2025 and has since adopted a more pro-innovation approach, issuing no-action letters for certain event contracts in December 2025.
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