ATLANTIC CITY, N.J. — Allowing people to bet on the outcome of U.S. elections poses a great risk that some will try to manipulate the betting markets, which could cause more harm to the already fragile confidence voters have in the integrity of results, according to a federal agency that wants the bets to be banned.
The Commodities and Futures Trading Commission is trying to prevent New York startup company Kalshi from resuming offering bets on the outcome of this fall’s congressional elections.
The company accepted an unknown number of such bets last Friday during an eight-hour window between when a federal judge cleared the way and when a federal appeals court slammed the brakes on them.
Those bets are now on hold while the appellate court considers the issue at a hearing Thursday.
At issue is whether Kalshi, and other companies, should be free to issue predictive futures contracts — essentially yes-no wagers — on the outcome of elections, a practice that is regulated in the U.K. but is currently prohibited in the U.S.
The commission warns that misinformation and collusion is likely to happen in an attempt to move those betting markets. And that, it says, could irreparably harm the integrity, or at least the perceived integrity, of elections at a time when such confidence is already low.
“The district court’s order has been construed by Kalshi and others as open season for election gambling,” the commission wrote in a brief filed Saturday. “An explosion in election gambling on U.S. futures exchanges will harm the public interest.”
The commission noted that such attempts at manipulation have already occurred on at least two similar unapproved platforms, including a fake poll claiming that singer Kid Rock was leading Michigan Sen. Debbie Stabenow, which moved the price of re-elections contracts for the senator during a period in which the singer was rumored to be considering a candidacy. He ultimately did not run.
It also cited a case in 2012 in which one trader bet millions on Mitt Romney to make the presidential election look closer than it actually was.
“These examples are not mere speculation,” the commission wrote. “Manipulation has happened, and is likely to recur.”
Unlike unregulated online platforms, Kalshi sought out regulatory oversight for its election bets, wanting the benefit of government approval.
“Other election prediction markets … are operating right now outside of any federal oversight, and are regularly cited by the press for their predictive data,” it wrote. “So a stay would accomplish nothing for election integrity; its only effect would be to confine all election trading activity to unregulated exchanges. That would harm the public interest.”
The commission called that argument “sophomoric.”
“A pharmacy does not get to dispense cocaine just because it is sold on the black market,” it wrote. “The commission determined that election gambling on U.S. futures markets is a grave threat to election integrity. That another platform is offering it without oversight from the CFTC is no justification to allow election gambling to proliferate.”
Before the window closed, the market appeared to suggest that bettors figured the GOP would regain control the Senate and the Democrats would win back the House: A $100 bet on Republicans Senate control was priced to pay $129 while a $100 bet for Democratic House control would pay $154.
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