Kalshi's Insider-Trading Probe: What Prediction Markets Mean for Compliance Teams
Prediction markets just got a little more uncomfortable for anyone who trades on political information. Kalshi, the regulated US event-contract exchange, is investigating a cluster of wagers that correctly predicted President Donald Trump would name Katie Zacharia as White House press secretary — trades placed before any news outlet had published the story. The probe lands at a moment when the Commodity Futures Trading Commission (CFTC) is already building an enforcement track record in this space, and it raises direct questions for accounting firms, CFOs, and compliance teams about how these instruments are treated under US rules.
What Actually Happened
According to a Wall Street Journal analysis of publicly available Kalshi data, at least three separate bets on Zacharia were placed before the Times and other outlets broke the story around 2 p.m. ET on Friday. Kalshi traders had priced Zacharia at roughly a 1% probability in the days prior to the announcement, meaning anyone who correctly backed her at those odds stood to earn outsized returns on a small outlay.
The Specific Trades Under Review
The numbers are modest in absolute terms but striking in the context of information asymmetry. A $19 wager placed around 10:42 p.m. ET on Thursday is set to pay out approximately $1,896. Two additional bets, for around $74 and $80, were placed around 1:41 p.m. on Friday — shortly before media reports went live — and are expected to return roughly $3,689 and $4,023 respectively. Combined stakes of approximately $173 are set to generate around $9,600 in total payouts, a return profile that is hard to explain purely by luck when the market consensus was sitting at 1%.
A Kalshi spokesperson confirmed the investigation to the Journal and declined to say more. Trades on the platform are publicly anonymous, but Kalshi holds verified identity records for all its traders, which is why formal enforcement is possible. The CFTC did not respond to the Journal before publication, and the White House also declined to comment.
The Pattern of Enforcement Behind This Probe
This investigation does not exist in isolation. It sits inside a rapidly developing enforcement pattern that compliance professionals need to understand.
The Gabriel Perez Settlement
In August 2026, former White House teleprompter operator Gabriel Perez agreed to repay $107,539 in profits and pay a $65,000 civil penalty after the CFTC found he had traded Kalshi "mention markets" — contracts tied to whether the President would reference a particular topic in a speech — after reading Trump's prepared remarks in advance of delivery. The CFTC credited Kalshi with cooperating in that investigation, which is significant: it signals that the platform's internal surveillance function is operational and is being taken seriously by the regulator.
The George Santos Action
On August 31, Kalshi itself took action against former Representative George Santos over trades linked to his attendance at the State of the Union. Santos was fined just over $71,000 by Kalshi. He had already agreed in July to pay $35,000 to settle with the CFTC over the same position, without admitting or denying the agency's findings. Two separate enforcement actions — one from the platform, one from the regulator — for a single set of trades is a structural signal that these markets are now subject to layered oversight.
Congressional Scrutiny and White House Warnings
House Oversight Committee Chair James Comer sent a letter in May requesting documents from prediction market platforms on how they verify trader identities and detect unusual activity. Separately, the White House had already circulated an internal memo warning staff against using non-public information for personal financial gain, following a series of well-timed trades related to the Iran conflict. The memo predates the Zacharia situation, but it makes the current probe harder to dismiss as a regulatory edge case.
In June, Kalshi began suspending trading in markets it classifies as carrying heightened risk of insider activity or manipulation. The company disclosed at the time that it had made more than 20 law enforcement referrals and opened more than 150 investigations during just the first quarter of the year. Those are not small numbers for a single exchange, and they point to a compliance infrastructure that is being actively used.
Why This Matters for Accounting and Finance Professionals
Prediction market contracts sit in an unusual position under US financial law. Kalshi is a CFTC-designated contract market, meaning its products are regulated event contracts, not securities. That matters for how enforcement is framed — the CFTC, not the SEC, has jurisdiction — but it does not reduce the compliance exposure for individuals or the firms that advise them.
Accounting Treatment of Prediction Market Positions
For firms using crypto accounting software or broader digital asset accounting software to track client positions, prediction market contracts deserve explicit attention. They are not straightforward wagers in a legal grey zone: they are regulated financial contracts. Gains are taxable, and positions need to be correctly categorised. Under current IRS guidance, gains from regulated futures contracts can qualify for 60/40 treatment (60% long-term, 40% short-term capital gain) under Section 1256 of the Internal Revenue Code, but that classification depends on the contract type and the exchange's regulatory status. Firms should not assume all Kalshi positions are automatically Section 1256 contracts without verifying the specific product structure.
The record-keeping obligation is also non-trivial. Because Kalshi requires identity verification and maintains trader records, there is a documented audit trail that parallels what the IRS would expect from any regulated exchange. Firms advising clients with prediction market activity need to ensure those positions are captured in their crypto bookkeeping software with the same discipline applied to exchange-traded derivatives.
Material Non-Public Information and AML Considerations
The Perez settlement established a precedent that the CFTC will treat the use of material non-public information in event-contract markets as an enforcement matter, not merely an ethical one. For compliance teams, the question is whether their client intake and ongoing monitoring processes are calibrated to flag this risk. A client who works in government, media, or a politically adjacent role and generates unusually high returns on low-probability political contracts is exactly the profile that a robust AML and suspicious activity framework should surface.
Firms should also consider the "know your customer" angle from the platform side. Kalshi's disclosure that it has made more than 20 law enforcement referrals suggests that platforms are not waiting for regulators to come to them — they are actively cooperating. Any client who is under platform-level investigation may also be subject to a regulatory referral, creating downstream reporting obligations for the advisers and accountants who hold their financial records.
What CFOs and Finance Teams at Politically Connected Organisations Should Review
The White House's internal memo on non-public information is a practical template for any organisation whose employees could plausibly have advance knowledge of market-moving announcements. That category extends well beyond government: it includes lobbyists, communications professionals, political consultants, media organisations, and anyone advising on policy-sensitive transactions. CFOs at such organisations should review whether their internal trading policies explicitly cover event-contract markets, not just equities and traditional derivatives.
The CFTC's evolving crypto regulation framework makes it increasingly likely that the regulatory perimeter around event contracts will tighten further, particularly as prediction markets grow in volume and political salience. Waiting for that perimeter to be formally defined before updating internal policies is a risk management failure, not a defensible posture.
Practical Next Steps for Compliance and Accounting Teams
The Zacharia probe is still at an early stage. No charges have been filed, and the individuals involved have not been publicly identified. But the institutional lessons are available now, without waiting for the outcome.
Updating Client Intake and Monitoring
Review whether your client onboarding questionnaire and annual review process asks about prediction market activity. If clients hold accounts on regulated event-contract exchanges, those positions should be captured in your digital asset accounting software and reviewed for unusual return profiles relative to prevailing market odds.
Policy Coverage for Event Contracts
Internal trading policies at accounting firms, advisory firms, and corporates with politically exposed employees should be tested against the scenario the CFTC has now twice enforced: a person with access to non-public information placing small, high-leverage bets on a regulated political event market. If the policy does not cover that scenario explicitly, it needs to be updated.
Tax Classification Review
Work with tax counsel to confirm the correct classification of any client's prediction market gains or losses. The Section 1256 question, the ordinary income question, and the self-employment question (for high-frequency traders) all need to be answered product by product, not assumed. Understanding how enforcement actions affect digital asset accounting software workflows is increasingly a core competency for tax and compliance teams operating in this space.
Document Retention
Because Kalshi maintains identity-linked records of all trades, any position a client holds on the platform is potentially discoverable in a regulatory inquiry. Ensure your document retention policy covers brokerage and exchange records for event-contract platforms with the same rigour applied to securities accounts.
Frequently Asked Questions
Are Kalshi trades regulated financial contracts or just bets?
Kalshi is a CFTC-designated contract market, which means its event contracts are regulated financial instruments under the Commodity Exchange Act. They are not unregulated wagers. This has direct implications for how gains are taxed and how enforcement is handled.
How are gains from prediction market trades taxed in the US?
The tax treatment depends on the specific contract type. Regulated futures contracts on a CFTC-designated exchange can qualify for Section 1256 treatment, which applies a blended 60/40 long-term and short-term capital gains rate regardless of holding period. However, not all Kalshi contracts necessarily qualify, so firms should confirm the classification with tax counsel before filing.
What is the CFTC's basis for enforcement in insider-trading cases on prediction markets?
The CFTC has authority over regulated event contracts under the Commodity Exchange Act. Trading on material non-public information in these markets can constitute fraud or manipulation under that statute, as the Gabriel Perez settlement in August 2026 demonstrated. The CFTC does not need to invoke securities law to act.
Should accounting firms flag prediction market accounts in AML reviews?
Yes, particularly for clients in politically exposed or information-sensitive roles. Unusually high returns on low-probability political event contracts, especially when a client has plausible access to advance information, are a red flag that warrants enhanced due diligence and, if appropriate, a suspicious activity report.
Does Kalshi share trader information with regulators?
Based on public disclosures, Kalshi cooperated with the CFTC in the Perez enforcement case and has stated it made more than 20 law enforcement referrals in the first quarter of 2026 alone. Traders should not assume anonymity beyond the public-facing interface: the platform holds verified identity records and has demonstrated willingness to share them with regulators.
Source: The Block