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George Santos, former U.S. Representative, was banned from participating in Kalshi’s prediction market and has been asked to pay more than $71,000. This marks the first time Kalshi has banned a person indefinitely in response to disciplinary sanctions. However, it suggests that alongside federal regulators, the platforms are also starting to impose penalties on their users who bet on results they can affect personally.
Mr. Santos bet on whether or not he would be present at the State of the Union Address, which was a market that only he could affect himself.
Kalshi bans Santos after CFTC fines him $35K
According to the notice issued by Kalshi’s compliance team, it has been established that “George Santos engaged in trading activity in certain markets related to his attendance at the State of the Union address.”
The permanent ban and the fine of more than $71,000 have been imposed independently of any government proceedings by Kalshi itself. Meanwhile, it is not the only punishment that Santos is receiving because of those trades. Last month, he settled with the Commodity Futures Trading Commission (CFTC). The agency holds jurisdiction over prediction markets.
According to the CFTC, Santos manipulated the value of the State of the Union contract through the positions he held at Kalshi, based on public statements he made about attending the event in the two weeks prior that moved the contract price “significantly.”
For that violation, Santos had to pay $35,000 without admitting or denying the CFTC’s allegations. As stated by Santos’s attorney, Joseph W. Murray, Santos cooperated with the CFTC in its investigation and the address was the first time his client placed a trade on a prediction market. As per Murray, Santos reserved his travel and hotel in Washington because he expected to attend the event.
Santos was a congressman representing New York starting in January 2023. Before the end of the year, he was expelled from Congress due to the investigation performed by the House Ethics Committee regarding Santos’s misconduct associated with ethics violations.
Why do prediction markets continue to fall into the same trap
Insider trading has become a recurring issue since prediction markets have developed into a business worth billions. Santos is the latest name, but not the only one. In April, the Department of Justice arrested an active-duty U.S. Army soldier who allegedly traded on confidential information on Polymarket before the arrest of former President of Venezuela, Nicolás Maduro.
Days later, the same pattern came up. Last Friday, the CFTC issued an order to Gabriel Perez, who used to be a White House teleprompter operator, to pay more than $172,000 for using advance access to President Donald Trump’s speeches to benefit from “mention markets” on Kalshi.
Some bipartisan legislation bills have been proposed by lawmakers that would prohibit trading by individuals with non-public information. However, nothing has been approved yet. Meanwhile, prediction market companies. This includes Kalshi and Polymarket, which rely on their own approaches, such as the requirement to verify the employment of traders in sensitive markets. The lifetime ban on Santos is the most vivid example of self-regulation of venues.
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