Can the Short-Staffed CFTC Handle Its New Crypto and Prediction Markets Responsibilities?

CFTC’s Ex-Leaders Doubt It Can Juggle Crypto, Prediction Markets

The Commodity Futures Trading Commission is going through one of the biggest upheavals in its 50-year history as it takes on prediction markets and braces for a new role as crypto cop, but those efforts will fall short without more cash or personnel, agency veterans say.

Trump-appointed Chairman Michael Selig, currently the agency’s sole commissioner while the other four seats remain vacant, has emphatically sought to assert the CFTC’s exclusive jurisdiction over prediction markets, bringing lawsuits against states and their gambling regulators. The agency also stands to solidify its role as crypto’s main US watchdog under the CLARITY Act (H.R. 3633), digital asset market structure legislation that cleared a key hurdle in the Senate Banking Committee last week.

The Trump administration is seeking more money and a bigger headcount for the CFTC, but it has also lost scores of employees since last January during the president’s bid to slash the federal workforce.

“These departures included the loss of seasoned, senior, veteran lawyers and economists in key areas of the commission’s divisions responsible for licensing, supervision, oversight, and enforcement,” said former Democratic CFTC Commissioner Kristin Johnson, now a law professor at George Washington University.

The CFTC had 551 total staff at the end of March, as its headcount plummeted from 631 last September and 726 at the end of fiscal 2024, according to Office of Personnel Management data.

Suspicious Betting in Washington Is on the Rise—and Authorities Are Playing Catch-Up

For decades, the information that fueled insider trading was found on Wall Street or inside the glass offices of public companies across the country.

The rise of prediction markets has created a new temptation in Washington, where the Trump administration’s fast-moving agenda is giving those privy to government information a chance to cash in on the volatility.

Regulators and prosecutors are now playing catch-up to combat a batch of suspicious betting that touches various corners of the federal bureaucracy. It is a new challenge for authorities because insider-trading laws weren’t designed for people who bet on the outcome of legislation, political races and even U.S. military operations.

The Mysterious Crypto Judges Who Settle Polymarket Disputes

Most prediction-market firms, such as Kalshi, sort out disputes and ambiguities themselves. But Polymarket outsources the task to a third-party service called UMA, which conducts votes when rival factions of traders disagree over who deserves a payout. The voters making such calls are holders of UMA’s digital tokens. The more tokens someone holds, the more weight their vote gets. Most voters are anonymous.

Polymarket “is not responsible for any disputes related to the resolution of any Contracts,” the platform states in its terms of use.

Many traders and crypto veterans say the UMA voting system is ripe for abuse. Nothing prevents the token holders from voting on disputed wagers in which they have a personal stake.

Be Careful What You Wish For

It’s being reported that an SEC plan to abandon the agency’s decades-old “no admit/no deny” settlement policy is in the works.

From the defense perspective, this may turn out to be a case of “be careful what you wish for.”

In my experience, the no admit/no deny policy tends to produce relatively restrained public charging documents in settled cases. But if settling parties are free to publicly deny the SEC’s assertions, I suspect the enforcement staff may feel compelled to include factual details that they otherwise might have left out.

Inequitable Sentencing Disparities in Insider Trading

Sentencing disparities prevail in the insider trading criminal context. On average, corporate directors and officers convicted of insider trading are treated significantly more leniently than rank-and-file employees as well as other offenders convicted of the same offense. These disparities exist even though high-level executives monetarily profit significantly more, on average, than their lower-level insider counterparts. This phenomenon directly contravenes the federal Sentencing Guidelines. Faithful implementation of these guidelines would result in substantially more severe sentences for such high-level offenders.[…]

Our article is the first to examine recent sentencing disparities unique to insider-trading cases. It ascertains the depth and breadth of the disparities by reviewing the legally salient facts and circumstances of dozens of high-profile and undeservedly low-profile insider-trading cases and questions the propriety of the resulting prison sentences. Additionally, we aggregate sentencing data from nearly 100 recent criminal cases from the previous five years to assess patterns and inequities across insider trading sentences.

Our analysis shows that the application of the Sentencing Guidelines, when combined with routine departure from these guidelines by federal judges, has culminated in an inequitable sentencing regime. To ameliorate this situation, we reason that fiduciary breach should be a priority because it is a significantly more accurate measure of culpability than the financial amount illegally gained or avoided by the offender.