Kalshi revealed plans on Thursday to bolster its surveillance and enforcement mechanisms, addressing increasing skepticism surrounding the rapidly growing prediction market sector.
This announcement comes just days before Super Bowl 60, which has already generated prediction market trading volumes exceeding $160 million, according to Kalshi. The platform, alongside its competitors, permits users to engage in event contract trading related to political, pop culture, financial market, and sports outcomes.
Questions about possible insider trading have been raised concerning predictions on known outcomes, such as which companies will advertise during the Super Bowl. New York Attorney General Letitia James recently cautioned against what she called "unregulated prediction markets."
"As a federally regulated entity, Kalshi prohibits market manipulation and insider trading, imposes restrictions on the types of markets it lists, and conducts Know-Your-Customer (KYC) and Anti-Money Laundering (AML) checks on every user prior to trading," the company mentioned in a statement. "Kalshi also reports all trades daily to the CFTC and has developed personalized prediction market trade surveillance and enforcement systems similar to those in the stock market."
On Thursday, Kalshi announced additional measures, establishing an independent surveillance advisory committee to provide quarterly analyses to its external counsel and release statistics on investigations into suspicious activities on its platform. The company also disclosed surveillance partnerships with Solidus Labs and the director of the Wharton Forensic Analytics Lab.
Additionally, the prediction market will collaborate with a former Undersecretary of the Treasury for terrorism and financial intelligence to guide Kalshi on "market integrity, trading surveillance, and financial compliance matters."
Kalshi lawyer Robert DeNault has been named the head of enforcement, working with the advisory committee to detect insider trading and market manipulation, according to the company. Kalshi has also created website hubs to offer consumers resources on responsible trading and market integrity.
In a post on X, CEO Tarek Mansour indicated that if any misconduct is detected, penalties include fines and potential referrals to the Commodity Futures Trading Commission — which oversees event contracts in the U.S. — and the Department of Justice for legal action.
"In the past year, we conducted over 200 investigations and froze relevant accounts," Mansour wrote. "Out of these, more than a dozen have become active cases with several referred to law enforcement."
Mansour noted that Kalshi's market surveillance system is inspired by those of the New York Stock Exchange and the Nasdaq, identifying suspicious actions by analyzing trades through pattern recognition models.
"All industries have bad actors, and no system, including Kalshi's, is flawless," Mansour added. "But we're dedicated to continuous improvement. There's much work ahead!"
Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.