Kalshi Cracks Down on Insider Trading in Prediction Markets

When Robert DeNault joined Kalshi’s legal team in October, he inherited a substantial “backlog” of potential trading violations. Now serving as the platform’s head of enforcement, DeNault has spent his first months systematically reviewing these cases, with the results set to be published in the coming weeks. His mandate is clear: to construct a disciplinary system that mirrors the rigor of established exchanges like the New York Stock Exchange or Nasdaq. “It’s taken a big chunk of my first few months here to get through these,” DeNault told Decrypt, emphasizing the scale of the cleanup operation. This professionalization effort is a direct response to external skepticism, fueled by events like a controversial $400,000 payout on rival platform Polymarket.

The push for internal reform is occurring alongside external legislative pressure. Rep. Ritchie Torres (D-NY) has introduced legislation aimed explicitly at preventing insiders from profiting on platforms like Kalshi, calling for stricter guardrails against corruption. For DeNault, this political scrutiny underscores the necessity of his work. He argues that the volume and health of a prediction market are directly tied to participant trust. “Volume only follows when participants feel like they are getting a ‘fair shake,'” he stated, rejecting the notion that insider trading is an acceptable feature of such markets as “mind-numbing.”

At the core of Kalshi’s enforcement strategy is a strict prohibition on “source agency” trading. This rule bars any individual affiliated with the entity responsible for resolving a specific contract—such as an event organizer or official—from trading on that market. Violations of this rule, DeNault explained, result in public disciplinary notices, regardless of whether the trader profited. This approach demonstrates Kalshi’s attempt to define and police insider activity more broadly than federal statutes might explicitly require.

DeNault illustrated the expansive interpretation of “legal duty” with a vivid example from the Super Bowl, where Kalshi offered markets on event details like the halftime show’s first song. He posited that even background performers, such as “staff dressed as bushes,” likely signed confidentiality agreements. Trading on material, nonpublic information (MNPI) gleaned from rehearsals would constitute both a breach of contract and a violation of Kalshi’s rules. “Those are types of policing activity that we might see on the exchange that you wouldn’t see necessarily from a federal regulator,” DeNault noted, highlighting the platform’s proactive stance. This granular enforcement is part of a broader effort to distinguish legitimate information asymmetry from illegal activity.

Kalshi’s crackdown unfolds against a backdrop of rapid growth and regulatory uncertainty. According to a Dune analytics dashboard, the platform has generated roughly $42.7 billion in cumulative trading volume, with a significant $6.8 billion chunk occurring in a single month coinciding with major events like the Super Bowl. Yet, as Kalshi scales, traditional regulatory oversight is contracting. A report from Barron’s indicates the Commodity Futures Trading Commission (CFTC) is losing enforcement capacity as attorneys leave its Chicago office. CFTC Chair Mike Selig has signaled a shift toward an AI-driven “minimum effective dose of regulation,” relying on technology to fill human gaps.

This regulatory vacuum has sharpened the competitive landscape. Kalshi CEO Tarek Mansour has used the insider trading debate to differentiate his platform, arguing that tolerating such activity “erodes the trust necessary for markets to survive.” Mansour revealed that Kalshi’s AI surveillance system, named Poirot, has conducted over 200 investigations, with several cases referred to law enforcement. By publicly committing to transparency and enforcement, Kalshi seeks to position itself as the trustworthy alternative in a sector where integrity is under a microscope. The coming wave of published disciplinary actions will be the first major test of whether this strategy can bolster market confidence and satisfy concerned lawmakers.