Contracts offered by Kalshi Inc., a New York-based exchange, allow retail traders to put money on the outcome of nearly anything. Kalshi listed wagers on Dec. 11 related to Thompson’s death that included whether the suspect, Luigi Mangione, would be extradited to New York from Pennsylvania, whether he acted alone and whether he would be convicted or plead guilty.

Two days later, trading suddenly halted, with Kalshi telling customers it made the decision “after receiving notice from our regulators,” according to messages reviewed by Bloomberg News.

The Commodity Futures Trading Commission and Kalshi declined to comment. The CFTC, which regulates Kalshi, bans futures trading linked to crimes including assassination, terrorism and war if the agency decides the so-called events contracts are against the public interest.

We have a lot so just go look https://t.co/64ovSBwC7a pic.twitter.com/BwO2ve2b0C— Kalshi (@Kalshi) December 12, 2024

Wagers linked to episodes like murder illustrate the challenge faced by regulators in the burgeoning business of events contracts — and offer a new spin on what happens when free markets collide with poor taste. Hot-button topics can be very profitable for the purveyors, and they can go live in less than a day without prior approval from the CFTC. Critics say exchanges are pushing futures trading far beyond actual risk hedging or other legitimate economic purposes.

“It’s straight gambling,” said Cantrell Dumas, director of derivatives policy at Better Markets, a financial policy think tank in Washington. “People are betting on whether this person is allegedly responsible for the assassination of another human being, and here we are desensitized to this and betting on whether he’ll enter a guilty plea.”  

Contracts related to Mangione were still being traded on unregulated exchanges like crypto-only Polymarket, which says it has excluded US users since 2022 as part of a settlement with US authorities. During a Dec. 23 hearing, Mangione pleaded not guilty, with his lawyer expressing concern about getting a fair trial due to statements being made by state officials.

The CFTC sought earlier this year to block Kalshi from offering bets on elections but faced legal setbacks after a US appeals court lifted a stay on trading and allowed those contracts to be handled on regulated exchanges. The court is set to weigh in on the CFTC’s authority to permanently stop those contracts.

“It’s not surprising that activities that are enumerated and potentially prohibited as the subject of derivative contracts are ones that are going to be on the forefront of issuers’ agenda,” said Gary DeWaal, a retired former senior counsel and derivatives markets specialist at law firm Katten Muchin Rosenman. 

Self-Certified 

Contracts can go live if an exchange merely files a self-certification with the CFTC by the close of business on the preceding day. Due to time constraints, the agency can’t stop self-certified offerings before they go live, but it can pause trading for a review period, leaving them in a limbo state. 

“There’s no 10-day review period like the SEC has,” Dumas said about new products. “In this instance, Kalshi can certify a contract and next day, it’s live.”

The tsunami of self-certified contracts is likely to grow in the coming years. CFTC-regulated companies like Robinhood Markets Inc. and Interactive Brokers Group Inc.’s ForecastEx launched election-themed trading earlier this year, and more event contracts exchanges are seeking approval to operate. 

It’s not the first time someone took wagers on the outcome of a criminal case. Almost 30 years ago, a UK bookmaker saw significant interest when it offered bets about O.J. Simpson’s murder trial. Some competitors refused, regardless of whether they were allowed.

The CFTC under the Trump administration is likely to be more friendly to these types of exchanges than during the Biden administration. One of the leading contenders to lead the regulator is former CFTC Commissioner Brian Quintenz, who has served on Kalshi’s board and is now a top policy official at a16z crypto, part of the influential Andreessen Horowitz venture capital firm.

The agency has spent the past two years in litigation with Kalshi and PredictIt, an unlicensed exchange, seeking to block their ability to list elections contracts. An effort to prohibit such contracts wasn’t finalized this year, opening the door for the next CFTC chair to make changes in how the regulator deals with prediction markets.

(Updates with not-guilty plea in the seventh paragraph. A previous version corrected the description of CFTC-regulated companies.)