Tennessee Bills Attacks Prediction Market Manipulation With Potential Felony Charges
Credit: FaceMePLS/Wikimedia Commons
A new Tennessee bill takes a novel approach to prediction markets. While other states have sued operators, issued cease-and-desist letters, and even filed criminal charges, Tennessee has turned its legislative attention to market manipulation.
If passed, SB 1992 would allow Class E felony charges for individuals who “engage in conduct intended to influence the outcome of an event while the person or another is a party to a contract with a prediction market by which the person will benefit, directly or indirectly, from the occurrence of the outcome.”
Class E is the least severe felony category. Such crimes are generally punishable by up to six years in prison and fines of up to $3,000 in Tennessee.
SB 1992 is a partisan bill backed by four Republicans, State Sens. Ferrell Haile, John Stevens, Paul Rose, and Jessie Seal. It would take effect July 1 if passed.
Strong Support in the Tennessee Senate
There isn’t much other text in the bill, which is less than a full page in length. Its simplicity has helped to to move swiftly in recent weeks, with strong support in the Senate.
After it cleared several committees in March, it moved to the full Senate floor on Thursday. There, it passed by a 28-1 vote, so it will move to the House. A similar bill backed by two House Republicans remains in committee.
If the House and Senate can agree on the bill, it would move to Gov. Bill Lee’s desk.
Insider Trading Has Been Making Headlines
Cases of suspected insider trading at prediction markets have generated national headlines. They have also led to calls for regulatory reform from U.S. Congress members. Market manipulation is a more extreme version of the same fear, in which users don’t only trade on what they know will happen, but actually cause events to happen in order to create those opportunities.
Just days ago, Politico reported that several new Polymarket accounts bet heavily on “Yes” for an April 7 ceasefire between Iran and the U.S. That was a curious move, given that all public sourcing on the matter pointed in the opposite direction. In just four hours, the chance of a ceasefire moved from approximately 5% to 99%.
Trump announced a ceasefire on social media hours after the trades. According to Politico’s reporting, the new accounts made roughly $400,000, though the resolution remains in dispute with a deadline on Friday evening.
The prediction markets themselves have begun responding. Both Kalshi and Polymarket re-examined their own rules last month. Both announced increased measures to combat insider trading.
Polymarket has touted insider trading as more of a feature than a bug on many social media posts, so the new rules indicate the operators are feeling real pressure.
Effort to Stop Sports Trading Thwarted in Court
Tennessee is not among the states that is currently locked in a jurisdictional battle with the CFTC over sports event contracts. However, its regulator did previously make an attempt to force prediction markets to stop offering such contracts to customers in the state.
Kalshi sued in response to the cease-and-desist notices from Tennessee Sports Wagering Council. That led to one of the prediction market’s most significant early wins in court.
Although that case is still playing out, the federal court granted Kalshi a preliminary injunction preventing the Council from attempting any enforcement action.
Between that and the CFTC’s intervention, it may be that Tennessee lawmakers see it as unwise to attempt to place any restrictions on the prediction markets themselves. Criminalizing users’ behavior rather than the platform is one way to be seen as doing something without inviting further legal action.
Image credit: FaceMePLS/Wikimedia Commons (license)
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