Crystal Ball Banhammer: California Slaps Insider Trading Rules on Prediction Markets

Governor Gavin Newsom just signed an executive order that prohibits public officials and their close associates from profiting from insider trading in prediction markets linked to economic or political events they can influence or have knowledge of.

The order specifically prevents gubernatorial appointees—individuals selected by the Governor to lead state departments, agencies, boards, commissions, and judicial benches—from using insider knowledge acquired through their positions for personal gain in prediction markets. Family members, spouses, and former business partners of appointed officials are also restricted from using non-public information for self-enrichment. Nothing says "family values" quite like banning your spouse from yoloing on political outcomes with insider info.

"Public service should not be viewed as a means for rapid financial gain," Newsom said. "While Trump's Washington is filled with ethical problems and insider profits, California is setting a clear standard: If you work for the public as a political appointee, your duty is to serve the public—end of story. We won't accept this type of corruption in California." Basically, if you wanted to become a degenerate gambler, maybe don't take a government paycheck.

The Governor's statement outlined several incidents where political insiders used private information from prediction markets for personal gain. One example involves six suspected insiders who reportedly gained significant amounts of money from US strikes on another case involved a Polymarket trader who secured around $410,000 betting on the arrest of former Venezuelan president Nicolás Maduro a few hours before it happened. Nothing screams "trust the process" quite like knowing exactly when Maduro's plane would touch down.

Congress is also paying attention. Lawmakers from both parties introduced the PREDICT Act this week, aiming to prevent members of Congress, federal officials, and their families from trading event contracts based on policy decisions, political events, and government actions. Violators would be required to surrender all profits to the US Treasury plus a 10% penalty. Think of it as a "stupid tax" in reverse—the government takes your gains and adds a convenience fee.

Major prediction market players Polymarket and Kalshi have already implemented restrictive measures to limit engagement from individuals with direct influence over outcomes, while strengthening existing regulations against insider trading and market manipulation. The platforms basically had to build walls around themselves before Congress and state governors turned prediction markets into a regulatory pinata.

Despite the insider trading concerns, prediction market platforms have seen heightened interest over the past year. Data shows both Kalshi and Polymarket achieved more than $20 billion in combined monthly trading volume for the first time this month, extending a record-setting streak to seven consecutive highs. Apparently, nothing attracts capital like the possibility of both making money and potentially going to jail.

Meanwhile, Newsom is widely seen as a contender for the presidency in 2028, with his chances of becoming the Democratic nominee currently pegged at 24% on Polymarket and 27.4% on Kalshi. When reporters reached out for comment about his potential presidential run during his visit to San Francisco on February 19th, Newsom described the speculation as "wildly premature," instead focusing on prediction markets and noting that "Kalshi is interesting for different reasons." Nothing like dodging presidential questions by pivoting to your own trading platform preferences.

In related news, Kalshi secured a license allowing it to offer margin trading to users through its affiliate Kinetic Markets LLC, a filing with the National Futures Association revealed