California Governor Targets Insider Betting on Prediction Markets

California Gov. Gavin Newsom is reportedly preparing to sign an executive order barring state appointees from using insider information to place bets on prediction markets, in an attempt to tighten ethics rules amid growing scrutiny of the sector.  

First reported by Politico, the order is expected to take effect immediately and focuses on officials who may have access to nonpublic information that could influence wagers tied to real-world events. 

The measure also strengthens existing state ethics laws by declaring that confidential information cannot be used for personal gain on platforms such as Kalshi and Polymarket. These sites have grown rapidly and feature contracts that are based on outcomes in sports, politics, and world events. This is a wide range of events that have caused problems, especially when government decisions are involved. 

Gov. Newsom's press office previewed the move publicly before releasing details, framing it as a response to growing unease over insider trading risks. The governor also pointed to what he described as weak federal enforcement standards, using the order to draw a contrast between state and national approaches. 

Recent incidents at prediction market apps have sharpened those concerns. The order cites cases where traders appeared to correctly anticipate sensitive military actions, including US involvement in overseas conflicts. Those wagers triggered questions about whether market participants had access to advanced information. The same developments have already led to legislative proposals in Congress aimed at restricting contracts tied to war and terrorism. 

Political connections have also come under review. Donald Trump Jr. has advisory positions at Kalshi and Polymarket, which have sparked even more criticism. However, lawmakers on both sides of the aisle are concerned about the prospect of insider trading and the appeal of the two platforms to younger generations. 

Platforms adjust as lawmakers close in 

As scrutiny of prediction markets rises, both Kalshi and Polymarket have begun tightening internal rules amid growing pressure from lawmakers. 

Kalshi has a new rule that prohibits political candidates from trading on their own races. It also added another rule that prevents athletes and teams from participating in events that they are a part of. The company has paired those limits with additional monitoring systems to identify suspicious activity earlier. 

Polymarket has taken a broader approach. Its updated rules prohibit users from trading where they could influence an outcome or hold confidential information. That definition stretches beyond sports to include corporate executives, policymakers, and others in positions of potential advantage. 

These changes arrive as federal lawmakers push more aggressive measures. Sens. Adam Schiff and John Curtis have introduced legislation that would restrict prediction markets from offering sports-related contracts, a segment that has driven much of the industry's recent growth. 

States are moving, as well. Utah Gov. Spencer Cox recently approved legislation expanding the definition of gambling to cover certain betting formats, part of a broader effort to limit how these platforms operate within state lines.