Prediction markets caught heat from two directions on Wednesday. The CFTC called out platforms for sloppy incentive-program filings. The New York City Council launched a formal probe into marketing allegedly aimed at young users. Both landed the same day.
Neither action is small. The Commodity Futures Trading Commission, which regulates platforms like Kalshi and Polymarket as designated contract markets, said it is seeing a rising number of filings tied to rewards and market-maker programs that are often “procedurally or substantively deficient,” making it harder for the agency to judge whether platforms have adequately disclosed program terms or assessed compliance risks.
Translation: file a sloppy incentive form and you might not just get a stern letter. Approvals could stall. Enforcement could follow.
The CFTC guidance, published Aug. 12, zeroed in on rewards for high-volume participants. Such incentives can push traders “to trade solely to reach volume targets, heightening risks of wash-trading, pre-arranged trading, or other fraudulent, manipulative, or disruptive trading practices,” the agency said. Market-maker programs that guarantee net profits or cover losses through stipends and rebates could also encourage manipulation.
This marks the second public warning from the CFTC in weeks. A prior advisory on July 24 cautioned platforms against cutting corners in templated contract certifications. The agency proposed its first prediction-markets rule in June. It has also taken the lead defending the sector legally, suing states that moved against the platforms under local gambling laws.
Hours later, the New York City Council opened a separate investigation into the marketing practices of four prediction-market platforms serving city residents. Council Speaker Julie Menin sent letters to Kalshi, Polymarket, Coinbase, and a fourth company. The Block reported it was Robinhood. Cointelegraph identified it as Gemini Titan. The letters themselves will need to clarify the discrepancy.
The council said it has been examining allegations of “predatory marketing practices associated with the prediction market industry, which has grown rapidly in New York City,” adding that “some of these practices raise serious concerns.” The probe will examine whether platforms used false and deceptive marketing through influencers to target young adults and minors, and whether new legislation, education, or enforcement is needed.
Council Member Shekar Krishnan, who chairs the committee on oversight and investigations, came in hard. “Apps like Polymarket are expanding rapidly unchecked,” he said. “Their unprecedented reach is because they are preying on young adults and minors with deceptive and sometimes outright false marketing tactics that pull them in and wring them dry.”
Council Member Harvey Epstein floated the idea of city-level legislation. “With the industry aggressively marketing to New Yorkers, we have a responsibility to investigate their claims and the advertising tactics these companies are using to ensure they are following the law,” he said.
The probe will also look at claims that Polymarket paid social-media creators to film themselves placing fake bets on replicas of the site, a claim first reported by the Wall Street Journal in June. CNBC reported Aug. 11 that Polymarket has since brought in a third-party consulting firm to oversee content from promotion partners and restructured its marketing team.
Polymarket said it looks forward to engaging with the council. Coinbase said it “offers our customers access to federally regulated prediction markets overseen by the CFTC, and fully complies with applicable laws.” Kalshi and Gemini Titan did not immediately respond to requests for comment, according to the outlets.
All of this lands inside a bigger fight. New York Attorney General Letitia James sued Kalshi in July, alleging it operates an illegal gambling business and seeking restitution, disgorgement, and civil penalties that could total at least $36 billion. A day before the council’s probe, the CFTC used emergency authority to order Kalshi to continue operating despite the state lawsuit. The agency has argued it holds “exclusive jurisdiction” over prediction markets, including sports contracts, and has sued several states in the clash.
State gaming authorities contend the platforms are running unlicensed sports betting. The CFTC counters that the trades are swaps under its purview as commodities regulator. That jurisdictional fight remains unresolved.
Two fronts. Two different pressures. One on filings discipline, one on marketing conduct. Neither the CFTC’s guidance nor the council’s probe carries the force of a final rule or a proven allegation. Both point toward where enforcement could go next.
