CFTC warns on mention markets as Polymarket suit deepens
A CFTC advisory on manipulation risk in mention markets lands as New York sues Polymarket and Kalshi denies wash-trading claims, according to iGaming Business.
The Commodity Futures Trading Commission has issued a staff advisory flagging manipulation risks in so-called mention markets, event contracts that let users bet on whether a public figure will use a particular phrase during an appearance, according to iGaming Business.
The 22 September memo followed the regulator's decision last month to ban a former teleprompter operator for President Donald Trump from trading on prediction markets for three years. The CFTC had alleged that Gabriel Perez, a longtime White House staffer, used advance knowledge of Trump's speeches to place low-risk trades on mention contracts tied to them.
In the advisory, the CFTC said contracts whose settlement depends on the "discrete conduct" of a single individual may often fail to be "independently generated" or "externally verifiable". Because prediction markets are registered as Designated Contract Markets, they must comply with Core Principle 3 of the Commodity Exchange Act, which bars listing contracts that are readily susceptible to manipulation.
The CFTC said it expects exchanges offering mention markets to put in place "prophylactic trading rules" capable of detecting and deterring manipulation. It stressed the advisory creates no enforceable rights and does not amount to a formal no-action position or new binding rule.
New York adds Polymarket to its case list
New York Attorney General Letitia James has filed suit against Polymarket, weeks after opening a similar case against Kalshi. Governor Kathy Hochul and James said an investigation by the Office of the Attorney General found Polymarket was running an unlicensed gambling operation in the state.
Hochul, who faces re-election in November, singled out Polymarket's policy of allowing users aged 18 to 20 to trade event contracts, noting that New York law bars anyone under 21 from wagering on sports. "By running an unlicensed gambling operation, Polymarket has done more than just knowingly violate state law, they have put New Yorkers at risk," she said in a statement.
Polymarket has moved to shift the case to the US District Court for the Central District of New York and filed a countersuit against James and officials at the New York State Gaming Commission. Chief legal officer Neal Kumar said: "While the AG's decision to copy/paste a recycled lawsuit is disappointing, we'll fight for our users."
James is seeking a $100,000 fine for each attempt or offer of sports wagering in the state, plus treble damages on any gains Polymarket made there. New York is pursuing at least $4.6 billion in damages from Polymarket, well short of the $36 billion it is seeking from Kalshi.
Kalshi disputes wash-trading claims
A former quantitative trader's allegations on social media that Kalshi manipulated volume on crypto and perpetual futures markets triggered scrutiny over the weekend, coinciding with a Wall Street Journal analysis finding more than a third of the platform's perpetual trades clustered around identical $5,500 orders, together totalling $5 billion in volume over the past month.
Some users on X argued that trading patterns in Ethereum perpetual contracts amounted to wash trading, in which a trader simultaneously buys and sells the same security to inflate volume artificially.
Kalshi rejected the claims in a lengthy statement titled "The Facts Behind Kalshi's Perpetual Volume", saying it pays market-makers a flat fee to maintain resting liquidity rather than rewarding volume traded. "We mechanically block self-trades, and have surveillance watching for pre-arranged trades with a partner," the company said.