Kalshi will increase its surveillance and enforcement capacities, bringing on financial intelligence experts from government, academia, and industry, after referring “several” suspicious trading cases to law enforcement last year.
The company announced the new hires, as well as a partnership with surveillance-technology business Solidus Labs, in a press release Thursday.
The changes come amid heightened attention on potential insider trading on prediction markets.
A number of trades about the removal of Venezuelan President Nicolas Maduro on Polymarket’s global site, which is not regulated by the Commodity Futures Trading Commission (CFTC) and is not available in the U.S., brought the issue to wider attention.
On an episode of podcast Pablo Torre Finds Out released Tuesday, journalist James Surowiecki said the potential for insider trading on prediction markets can create harmful incentives.
“We’re essentially creating an incentive for people to leak insider information or to use insider information to make money,” Surowiecki said.
Kalshi bans insider trading in house rules
Unlike stock markets, insider trading on prediction markets is not illegal, unless the insider information in question was misappropriated or the trades could be considered market manipulation. However, Kalshi’s rulebook prohibits all kinds of trading with material non-public information, and the CFTC can take action against exchanges that don’t enforce all their house rules.
On social media site X, Kalshi co-founder Tarek Mansour explained the reason why Kalshi bans insider trading. Some people involved in prediction markets, including Brian Armstong, the CEO of Kalshi partner Coinbase, have argued that insider trading can be beneficial.
“Some say insider information can make prediction markets more accurate,” Mansour wrote. “But the same argument can be made for stock markets, where insider trading is banned.
“Insider trading erodes trust. When people believe a market is unfair, they stop trading. Liquidity dries up, volume collapses, and the market dies. Also, allowing it could incentivize bad actors to leak information they shouldn’t.
“So Kalshi bans insider trading.”
Kalshi ran ‘over 200 investigations’
Mansour went on to write that Kalshi already does plenty of work to police insider trading and other suspicious activity, even though the effects may not always be clearly visible.
He noted that Kalshi traders can make whistleblower tips, and said that while the users submitting them may not always receive a response, the tips are still being followed.
“In the past year, we ran over 200 investigations and froze relevant accounts,” Mansour wrote. “Of these, over a dozen have become active cases and several have been referred to law enforcement.”
Kalshi ups surveillance capabilities
Kalshi is also increasing its surveillance and enforcement capacity, bringing in experts to monitor for potentially suspicious trading.
Wharton Forensic Analytics Lab Director Daniel Taylor and Lisa Pinheiro, managing principal at Analysis Group, will form a new surveillance committee that will provide quarterly reports to Kalshi’s lawyers, as well as publishing statistics on flagged trades and enforcement.
Mansour said that Taylor will take the lead on “intricate ‘cousin of the spouse of the dude at Tesla’ insider cases.”
Former Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian Nelson will also join Kalshi as an advisor on market integrity, trading surveillance, and financial compliance.
Kalshi lawyer Robert DeNault will take on a new role as head of enforcement.
“Bobby is a force of nature and a self-professed financial crime nerd,” Mansour wrote. “He was a white-collar criminal attorney and spent law school studying presidential investigations and the Panama Papers.”
Kalshi will also partner with trade surveillance technology business Solidus Labs, which will monitor trades on the platform. Solidus currently primarily works with crypto exchanges.
“We are proud to support Kalshi on its mission to reinvent financial markets with event-based trading,” Asaf Meir, founder and CEO of Solidus Labs, said in the press release. “At Solidus, we believe that a platform built to trade on the future deserves a trade surveillance partner that isn’t stuck in the past.
“By deploying Solidus’ agentic trade surveillance and compliance hub, Kalshi is demonstrating once again its highest commitment to consumer investor protection and market integrity.”
