Kalshi CEO expects US DOJ to prosecute insider trading cases • Hacker News Board

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#91

Post by tptacek » Wed, Apr 15, 2026, 9:13 PM UTC

cyanydeez wrote: post #79

tptacek wrote: post #36

This issue reveals the gap between the prediction market premise and what these things actually are, which is: unregulated prop gambling venues. If things like Kalshi and Polymarket are prediction markets, then, at least as far as the intrinsic concerns of the market itself are concerned, insider trading is a good thing; literally part of the point. If they are instead how they function today, then insider trading is…

Your surmise cuts both ways though; much of the stockmarket is fundamentally doing the same thing. It's just the prop bet is a normalized white collar activity. I'd like regulations to cut into that too, so the market isn't just a weird "Did trump tweet something deranged today?"

Fairness isn't the justification for insider trading enforcement in the stock market, either.

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#92

Post by mbesto » Wed, Apr 15, 2026, 9:13 PM UTC

tptacek wrote: post #4

georgemcbay wrote: post #3

Ok, but isn't the idea that prediction markets surface private knowledge a big part of the defense as to why they shouldn't be treated as illegal gambling? So like, which is it, is insider trading expected, or are these just gambling sites that should be illegal in many jurisdictions?

Yes. This argument doesn't even apprehend insider trading laws on regulated securities markets in the US, where the crime is about theft, not fairness.

Correct. This is an important distinction.

Matt Levine has a good take on this. His informal, distilled definition is essentially:

- There is a time gap where insiders know something material and the public does not.

- Someone with access to that material nonpublic information, who is not supposed to use it for personal gain, trades on it anyway.

- That conduct is treated by courts as a deceptive scheme against the less‑informed trading counterparty and against the information’s rightful “owner.”

In other words - you profit at another person's expense (e.g. stealing) because you have information and the other person doesn't.

Two scenarios:

(1) a US Naval Officer knows about a strike 24 hours before it happens and places a bet against someone who doesn't have knowledge about the strike.

(2) Neither a US Naval Officer knows about a strike 24 hours before it happens and someone who doesn't have knowledge about the strike do nothing.

Scenario 1 is (or should be) illegal because the officer is using the information for personal gain, when the information was explicitly given to them for national defense reasons (thus violating the rightful owner clause).

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#93

Post by mbesto » Wed, Apr 15, 2026, 9:15 PM UTC

notahacker wrote: post #42

tptacek wrote: post #38

Earlier quoted context omitted.

How does this trade work? Nobody knows who the insider is, they only see market direction.

You are a spokesperson or decision maker for an entity which is bet on, like a sports team or the government. You publicly indicate that you are going to do one thing (probably the thing that makes most sense), so the market bakes that into their assumptions and offers favourable odds for bets on doing the other thing. Then you place your bet shortly before you do the other thing. (it's true that low level insiders m…

This gets into game theory and doesn't follow a predetermined flow like you're suggesting.

It's a bit like playing poker...does the guy who just went all in have pocket Aces or not?

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#94

Post by CodingJeebus » Wed, Apr 15, 2026, 9:18 PM UTC

michaelt wrote: post #80

Traster wrote: post #49

Earlier quoted context omitted.

Even if you buy the idea that Kalshi is a prediction market whose mechanism is gambling but whose product is accurate predictions, you don't have to buy the idea that insider trading is a good thing. Yes, in the rare occasion there exists someone with (a) insider information (b) confidence their actions won't impact their insider position and (c) access to capital - then you get extremely accurate predictions. In eve…

If people with more information profit at the expense of people with less information, isn't that exactly how things are supposed to work? If you're approaching a market with hard facts, detailed comparisons and solid evidence; while I'm trading in the same market based on vibes and intuition, surely it's expected that your returns would be better, and mine worse?

You're confusing collusion with being informed. The concept of market rationality is based on the premise that all participants in said market more or less have access to the same information. Fools can choose to not be informed before making a trade, but passing along sensitive information that contradicts market rational behavior causes people to lose trust in the market.

Perfect example from today. Allbirds just announced that they're going all in on AI infra, skyrocketing the stock. Had I bought a million dollars worth of Allbirds yesterday, everyone would think I'm an idiot. But now, they would think I have insider information and would no longer want to participate because it would make no sense to buy Allbirds yesterday unless I knew the announcement was coming.

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#95

Post by tptacek » Wed, Apr 15, 2026, 9:21 PM UTC

mbesto wrote: post #92

tptacek wrote: post #4

Earlier quoted context omitted.

Yes. This argument doesn't even apprehend insider trading laws on regulated securities markets in the US, where the crime is about theft, not fairness.

Correct. This is an important distinction. Matt Levine has a good take on this. His informal, distilled definition is essentially: - There is a time gap where insiders know something material and the public does not. - Someone with access to that material nonpublic information, who is not supposed to use it for personal gain, trades on it anyway. - That conduct is treated by courts as a deceptive scheme against the l…

Scenario 1 is illegal because it gravely violates military secrecy laws.

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#96

Post by pjc50 » Wed, Apr 15, 2026, 9:24 PM UTC

michaelt wrote: post #80

Traster wrote: post #49

Earlier quoted context omitted.

Even if you buy the idea that Kalshi is a prediction market whose mechanism is gambling but whose product is accurate predictions, you don't have to buy the idea that insider trading is a good thing. Yes, in the rare occasion there exists someone with (a) insider information (b) confidence their actions won't impact their insider position and (c) access to capital - then you get extremely accurate predictions. In eve…

If people with more information profit at the expense of people with less information, isn't that exactly how things are supposed to work? If you're approaching a market with hard facts, detailed comparisons and solid evidence; while I'm trading in the same market based on vibes and intuition, surely it's expected that your returns would be better, and mine worse?

A fact is a statement about past. A bet is contingent on the future.

Insiders can change the facts.

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#97

Post by tptacek » Wed, Apr 15, 2026, 9:29 PM UTC

stouset wrote: post #89

Traster wrote: post #49

Earlier quoted context omitted.

Even if you buy the idea that Kalshi is a prediction market whose mechanism is gambling but whose product is accurate predictions, you don't have to buy the idea that insider trading is a good thing. Yes, in the rare occasion there exists someone with (a) insider information (b) confidence their actions won't impact their insider position and (c) access to capital - then you get extremely accurate predictions. In eve…

Not just insider information, but insider access . If the outcome of some prop bet is under the control of a handful of people, those people can trivially conspire to produce whatever outcome is most profitable to them.

If the outcome of a prop bet really is fully controlled by insiders, so that those insiders are making decisions based on betting outcomes, then allowing that betting to occur seems antisocial and counterproductive to begin with. This is another problem with the Polymarket/Kalshi species of "prediction market".

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#98

Post by JumpCrisscross » Wed, Apr 15, 2026, 9:29 PM UTC

tyre wrote: post #60

I don't understand why it is a crime under current US law. Prediction markets can only do sports gambling (the vast majority of their volume) because they self-certify under the CFTC. The CFTC doesn't have the same standards of "insider trading" as the stock market, because insider trading is the entire point of business at the CFTC! If you're trading, like, oil futures or wheat futures or whatever, you are likely do…

> If you're trading, like, oil futures or wheat futures or whatever, you are likely doing so specifically because you have inside information about your business needs

Insider trading, in the U.S., is not legally about fairness but about theft. A firm hedging its own positions is using its information for its own purposes. A federal employee trading on what they heard is abusing the trust placed in them by the American people.

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#99

Post by usrusr » Wed, Apr 15, 2026, 9:32 PM UTC

In stock markets, insider trading is a big no not because it ruins someone's gambling habit, but because the entire concept of the corporation requires a certain amount of trust of financiers in financees. That whole pooling of capital thing, to do stuff that has too high a capital requirement to start individually. When shares are publicly traded, that trust is impossible when holders have to assume that they will be gamed by employee-owners and that would mean nobody outside the circle of those in the know would ever put in money and then you could just give up and declare that publicly traded corporations simply can't exist. "Don't bother investing, they will strip you".

Prediction markets don't have any "natural" reason like that for excluding insider trading. It's just "game designers" crying their hearts out when someone ruins their game by having an advantage.

The employee could not be an insider if his employer did not exists because of a lack of rules against him trading. The prediction market not existing would not make the insider any less of an insider (we are not tking about people inside the prediction market maker!)

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#100

Post by kelnos » Wed, Apr 15, 2026, 9:38 PM UTC

ryandrake wrote: post #90

hackingonempty wrote: post #85

Earlier quoted context omitted.

The President's pardon power is enumerated in the Constitution and has been litigated extensively. https://constitution.congress.gov/browse/essay/artII-S2-C1-3...

Which ultimately doesn't matter. If the president tries to do something, and no court actually stops him, then it doesn't matter whether or not it's in the Constitution, whether or not it's written down in law, or whether or not it has been litigated in the past. He tried to do it, nobody stopped him, therefore he can do it. We are finding out in real time that the president can actually do a lot of things, simply be…

Fair, but I don't think it's likely that SCOTUS would invalidate any of Trump's presidential pardons, assuming a future president decided to prosecute someone he pardoned. I doubt even the liberal members of SCOTUS would want to touch that.