Kathmandu— The New York City Council has launched an investigation into prediction market platforms like Polymarket and Kalshi, alleging they employ “deceptive and predatory” practices that encourage gambling and potentially facilitate insider trading. Council Speaker Julie Menin sent letters to Polymarket, Kalshi, Coinbase, and Gemini Titan on Tuesday outlining the concerns, citing reports of undisclosed influencer payments, misleading advertisements, and encouragement of illegal activity. The investigation comes as the industry has grown into a $240 billion-per-year market, attracting scrutiny over its potential for abuse.

Allegations of Deceptive Marketing

The New York City Council is focusing on reports that Polymarket and competitors targeted young adults with potentially misleading advertising. These allegations include claims that the platforms paid influencers to promote their services without disclosing sponsored content, showcased fabricated winning trades, and misrepresented losing bets as successes. According to Menin, these tactics are designed to aggressively entice consumers into betting on a wide range of events – from sports and politics to weather and cultural phenomena.

Insider Trading Concerns

The investigation also centers around concerns about insider trading within prediction markets. Several incidents have already drawn attention, including the probe into a White House staffer allegedly making bets based on non-public information regarding former President Trump’s remarks. Additionally, a US special forces soldier was arrested for reportedly using classified Pentagon materials to profit from correctly predicting the removal of Venezuelan President Nicolas Maduro. Suspicious trading activity surrounding geopolitical events has also raised red flags.

Recent Events Fuel Scrutiny

Trading volume spiked during periods of international tension, such as the conflict between the US and Israel regarding Iran. Reports indicated over $1 billion in “perfectly timed” wagers were placed, including a significant bet just prior to US strikes on Iran and substantial oil futures trading before an announcement from former President Trump. These events prompted a warning from the White House to staff about insider trading.

Federal Oversight Challenges

The federal government has previously defended prediction markets against state-level regulation, arguing that event contracts qualify as financial instruments rather than traditional gambling. This stance led to intervention by the US Commodity Futures Trading Commission (CFTC) earlier this week when New York Attorney General Letitia James attempted to shut down Kalshi for violating state gambling laws; the CFTC ordered Kalshi to remain operational.

Platform Response

Polymarket has responded to Menin’s letter, stating that it “looks forward to engaging with The New York City Council on this matter.” No immediate responses were available from other platforms named in the investigation.

The New York City Council's investigation is ongoing and will likely involve requests for documents and testimony from the involved companies. The outcome could lead to increased regulation of prediction markets within the city.

(With inputs from RT)

Originally published on abcnews.com.np.