When prediction market app Kalshi announced that it would be fining three congressional candidates across the country for insider trading violations, I was relieved that they were actually enforcing their rules on insider trading, something that has been a hot button issue as of late.
What I wasn’t relieved to hear was that one candidate punished was Matt Klein, who is running for the Minnesota Democratic-Farmer-Labor Party (DFL) nomination for our very own congressional district two. District Two is the home of Northfield, Minnesota and Carleton College — the seat currently held by Angie Craig.
The former Mayo Clinic doctor announced on April 22 that he was suspended from Kalshi for five years and paid a roughly $500 fine after he bet $50 of his own money on himself to win the Democratic primary. To learn that a frontrunner for the Democratic nomination, and likely, the congressional seat, engaged in insider trading is disappointing to say the least. Klein claimed he was “curious about how it worked” and that his experience proved the need for “clearer regulation.”
I can’t say that I disagree with him. In fact, prediction markets like Kalshi are currently being used to sidestep sports betting laws and profit off of getting people (especially young men) addicted to gambling in a way that is both unethical and legally dubious. In fact, it is so legally dubious that Kalshi is facing lawsuits from several states, including Massachusetts, Washington, California and others over concerns that Kalshi was intentionally and illegally violating state law.
The way that Kalshi works is simple: you’re not betting, you’re trading shares of a certain event [JUMP] to happen. For example, in the market, “MN-02 Democratic Nominee?” on May 2, you could buy a share of “Matt Klein” for 15 cents, a share of “Kaela Berg” for 13 cents, or a share of “Matt Little” for 68 cents. This means that traders believe Matt Little is the most likely to win the nomination.
Unlike traditional sports betting establishments, Kalshi does not have a stake in individual outcomes, instead it pits users against each other and skims off the top. This means that there is no incentive for them to discourage insider trading outside of public pressure and federal regulation.
This has led to several notable instances of said insider trading. Some, like Klein’s, were relatively minor, but others were enormous. Several sources, including PBS and BBC, have reported that just hours prior to Nicolas Maduro being deposed in Venezuela, someone bought shares that suggested he would be toppled and ended up profiting over $400,000. This is just one of the several instances where someone within the federal government placed bets on information that was not public.
We have seen this corruption run wild during the second Trump administration as restrictions have been loosened and rules not followed. We cannot allow the same corrupt behavior we have seen federally to become accepted or normalized in the Democratic party.
To his credit, Klein admitted that he made a mistake and agreed to pay the fine. Although, the damage may be done already. Ironically, the Kalshi odds for Klein to win the nomination dropped from about 45% to 12% after the news broke, skyrocketing Little into first place.
While I believe that Klein should be held more accountable for his actions than he was, the blame should rest on the shoulders of Kalshi. While these penalties were just a slap on the wrist and a signal that they would be enforcing insider trading rules, by existing as a way to sidestep rules, Kalshi is fostering an environment where others feel comfortable to do the same.
We need regulation of these markets, and we need it fast. The lawsuits are proceeding, but courts take time, and corruption is an ongoing process. The U.S. Senate banned members and staffers from using prediction markets, which is a good first step, but we need to take additional steps to ensure that our politics is not compromised by monetary interests.
As DFL members, we have no ground to criticize Trump and his allies for their corruption if we allow anything similar to happen in our own party. We need a set of guidelines that we can hold our own candidates accountable to. The DFL bylaws and constitution currently make no mention of gambling or prediction markets. In the world we live in, we unfortunately need guidelines like that and a way to hold people accountable internally to remain strong and effective.
The DFL endorsement convention is happening in less than a week, and there, delegates will vote on who to endorse. All three major candidates — Matt Klein, Matt Little, and Kaela Berg — believe they have a shot at winning the support of the DFL.
No matter who wins, we must strive to protect our politics from the corrupting influence of money, and create a set of consistent regulations, not just for ourselves, but for Kalshi and other companies seeking to destroy young lives for a profit.