Minnesota Bans Prediction Markets, is Immediately Sued by CFTC

Minnesota Becomes First State to Ban Prediction Markets

A day after Gov. Tim Walz of Minnesota signed into law the first state law explicitly barring prediction markets, the Trump administration sued the state on Tuesday, seeking to block it from going into effect this summer.

The law, which had the backing of a bipartisan group of state legislators, would make it illegal to host or advertise a prediction market site in Minnesota. Under the law, a person who creates, operates or advertises a prediction market that allows users to place bets on future events could be charged with a felony punishable by up to five years in prison and a $10,000 fine. The law would not subject Minnesotans who bet on the sites to criminal penalties.

by NYT

Prediction Markets Are the New Public Markets

Individual investors can’t buy shares of OpenAI or Anthropic or SpaceX, because those companies are not public. But now they can bet on “Will OpenAI’s valuation hit __ by December 31,” for various numbers that might go in that blank, or similar markets for Anthropic and SpaceX and other private companies. (These binary bets are not quite as good as actually buying stock, but give them time.) “Democratizing access to financial information,” here, means betting on stocks of companies without public disclosure. You get to trade more stocks, but you get less information about them.

Again, technically, this solution doesn’t work in the US, because technically US investors are not allowed to use Polymarket’s main site. Nobody has ever seemed to care much about this, and Polymarket did launch its US app last week. These markets are probably “security-based swaps,” which should in theory make it difficult for a regulated US prediction market to list them, but again nobody cares very much. “Anyone can engage” with these markets, says Coplan. “We should make it easy for ordinary retail investors to bet on private company stocks” seems, at this point, pretty uncontroversial.

We seem to be reaching the end of securities regulation. For almost 100 years, the bargain in US securities law was that companies could sell stock to ordinary individual investors only if they publicly disclosed material information. The public could trade public stocks, which made public disclosures, but not private stocks, which didn’t. Everyone seems tired of that bargain and now it is breaking down.

by Matt Levine – Bloomberg Opinion

Big Law Insider Trading Might Be Less Irrational Than It Seems

Todd Haugh, a professor of business law and ethics at Indiana University, and a former Big Law associate himself, discussed the “fraud triangle.” This theory identifies three factors driving the actions of fraudsters: incentive or pressure, often financial; opportunity, in terms of being in a position of trust with the ability to engage in wrongdoing; and rationalization, which Haugh described as “the story you tell yourself about why it’s okay to violate a trust.” In his view, the third element is the most interesting aspect of the triangle.

After offering the caveat that there’s still so much we don’t know, Haugh pointed out something noteworthy: None of the individuals involved in the alleged scheme were partners, despite having practiced for 10 or more years. This gives rise to several possible rationalizations, such as “I should be able to cut corners and get mine, because all these other guys have passed me by,” or “I’ve been screwed over, working so hard for so many years, and this is how I’m going to make it up.”

Rationalization can take other forms. In some white-collar cases, individuals take steps that aren’t illegal but come close to the line—or perhaps they do cross the line into illegality, but in a relatively minor way. If nothing happens and they don’t get caught, that can be used to rationalize more serious behavior, Haugh said.

by Bloomberg Law

The SEC’s “Tokenized Stock” Plan Is Financial Innovation Theater. And We Should All Be Alarmed.

The SEC’s imminent “innovation exemption” for tokenized stocks may be the most reckless regulatory gamble in a generation. And that is saying something.

Here’s the SEC’s scheme: Third parties — with no authorization from the underlying companies — can create tokens that track the price of any public stock, trade them on largely unregulated DeFi platforms and call it financial innovation. No issuer consent required. No firm guarantee of voting rights. No dividends. Just a digital wrapper around a stock you don’t actually own.

In other words: NFTs for equities (and we all know how brilliantly that worked out for investors). The problems are structural and severe....

by John Reed Stark on LinkedIn

Flurry of Suspicious Oil Trades Worth $800 Million Triggers Regulatory Probe

A trader couldn’t hope for better timing.

Moments before President Trump postponed strikes on Tehran’s energy infrastructure in a morning social-media post on March 23, a spasm of trades hit the market during off-hours. More than $800 million worth of U.S. and international oil futures changed hands in a matter of minutes, according to LSEG data.

The traders on the right side of those well-timed bets profited when U.S. oil prices fell as much as 13% in the wake of Trump’s change of heart. At least five firms posted gains of $5 million or more on crude futures they bought and sold that day, as measured by average prices adjusted for volume, according to trading records viewed by The Wall Street Journal.

The Commodity Futures Trading Commission is now scrutinizing the surge in trading volumes. The regulator, which supervises futures markets, is trying to gauge whether an insider with prior knowledge of Trump’s March 23 post traded on that information or leaked it to someone who could do so, according to people familiar with the matter.

by WSJ