NY, Illinois bar employees from prediction-market insider trades

New York and Illinois issued executive orders this week banning state employees from using nonpublic information obtained in their jobs to place wagers on prediction markets. Both states have also filed legal actions against platforms they say operate as illegal gambling sites.

New York Governor Kathy Hochul signed her executive order on Wednesday. Illinois Governor J.B. Pritzker signed a near-identical order on Tuesday covering state employees under his authority. New York filed two lawsuits on Tuesday in Manhattan state court targeting Coinbase and Gemini, accusing the firms of offering unregistered gambling across sports, entertainment and political markets.

Hochul criticized federal oversight in the executive order, writing, “Despite the proliferation of wagering opportunities now facilitated by these companies, federal regulators have not to date required any meaningful ethical standards relating to conduct on these markets, including protections against insider trading.”

New York Attorney General Letitia James argued in the complaints that platform wagers “constitute illegally unregistered gambling schemes” and the state is seeking billions in damages. James also wrote that platforms “have not undertaken any meaningful enforcement actions to prevent insider trading, but have instead focused on precluding states from exercising oversight authority over the gambling undertaken on these platforms.”

Illinois has pursued similar legal claims and used its executive order to block state employees from trading on information they learn through their official roles. Officials in both states described the directives and lawsuits as responses to a gap they say exists between the new products offered by prediction market platforms and state law enforcement powers.

Several other states have brought gambling-related lawsuits against prediction market operators in recent months, and California issued a comparable ban on state employees last month. The federal government has taken a different view: the administration that served before the current one defended the platforms and argued that the Commodity Futures Trading Commission should have primary authority to regulate the market.

Public reports of alleged insider-based bets have increased scrutiny of the platforms. In February, authorities detained two Israelis with military ties on allegations they placed bets tied to the timing of a planned attack on Iran. In January, a trader on a prediction market reportedly earned hundreds of thousands of dollars after correctly predicting details of a U.S. attack on Venezuela, prompting questions about oversight.

Operators of prediction markets maintain they are exempt from state gambling laws and have argued for federal regulation by the CFTC. Governors in New York and Illinois said their orders and lawsuits aim to protect the integrity of government functions and address the absence of federal rules governing ethical conduct on prediction markets.