Investigation Uncovers Allegations of Insider Trading in Prediction Markets Amid Bets on Khamenei's Death and Large Windfalls

Prediction Market Traders See Windfall Gains Amid Middle East Tensions

Market Activity

Prediction markets such as Polymarket and Kalshi saw significant activity over the weekend, with traders making substantial gains on bets related to the United States' attack on Iran and the death of Iran's Supreme Leader Ayatollah Ali Khamenei. On Polymarket, trades reached a total of $529 million, while Kalshi recorded $36 million in bets regarding a regime change in Iran.

Profitable Trades

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Analysts at Bubblemaps SA found that six accounts made approximately $1 million in profits by betting on the exact date of the attack, 28 February. Additionally, analytics firm Polysights reported that contracts tied to the potential overthrow of Iran's supreme leader implied a 40% likelihood, with 90% of accounts flagged for alleged insider trading supporting the contract.

Kalshi Shuts Trade and Reimburses Losses

In response to the significant activity, Kalshi issued clarifications on social media and eventually shut trading. The company also promised to reimburse all fees from this market, a move that cost approximately $2.2 million. A spokesperson for Kalshi stated that the company's rules were clear from the beginning and that they settled based on the rules.

Regulatory Concerns

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The rapid growth of prediction markets has raised concerns about rigging and insider trading. Critics argue that these platforms have little to no oversight on unfair practices, which can lead to suspiciously accurate information being used to make big profits. In a bid to address this issue, Kalshi has announced that it will settle the Khamenei contract based on the last offered price, rather than a binary win.

Legislative Action

Senator Chris Murphy is drafting legislation to ban prediction markets that he claims are "corrupt and destabilizing." The Coalition for Prediction Markets, which includes Kalshi as a member, has responded to Murphy's proposal, stating that contracts involving death have no place on American exchanges.

Market Valuations

Kalshi has been valued at $11 billion and has received funding from venture capital firms such as Sequoia and Andreessen Horowitz. Polymarket, founded by Shayne Coplan, has been valued at $9 billion and operates offshore, largely outside US regulatory oversight. The two platforms together handled tens of billions in combined volume last year.