The U.S. Commodity Futures Trading Commission (CFTC) has raised concerns about the susceptibility of prediction markets to manipulation, citing recent incidents as evidence in its ongoing case against U.S.-based predictions platform Kalshi. In a filing dated September 14, the regulator warned that prediction markets could fall prey to “spectacular manipulation” as demonstrated by incidents on competing platforms.

The CFTC pointed to two notable cases of attempted manipulation. On Polymarket, traders orchestrated a major manipulation attempt involving bets on Vice President Kamala Harris winning the 2024 U.S. presidential election. Another instance on PredictIt involved a false poll that showed musician Kid Rock leading Senator Debbie Stabenow in a Michigan Senate race, which impacted market prices on the platform.

Kalshi’s Ongoing Legal Battle

Kalshi, which had sought to offer prediction markets on U.S. elections, has been engaged in a legal tussle with the CFTC. The commodities regulator argues that Kalshi’s election markets fall under its purview and should be regulated due to the potential for manipulation.

The regulator partially lost its initial case on September 6, when District Court Judge Jia Cobb ruled that the CFTC had “exceeded its statutory authority” in ordering Kalshi to halt its election markets. However, the CFTC quickly filed an emergency motion for a stay on the ruling, which was granted on September 9, temporarily blocking Kalshi’s ability to offer election markets.

Despite the court-imposed stay, Kalshi briefly launched its U.S. election market on September 12. However, the platform had to take it down just hours later after the appeals court issued another stay order.

Broader Implications

The CFTC’s concerns about manipulation in prediction markets have sparked a larger debate over the future of these platforms. While Kalshi argues that it stands to suffer major financial harm if it is barred from offering election markets, the CFTC insists that the risks of manipulation and harm to the public far outweigh any potential losses the platform might face.

The regulator described Kalshi’s arguments as “sophomoric,” drawing an analogy between Kalshi’s position and a pharmacy selling illicit drugs simply because they are available on the black market.

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