After months of criticism over controversial prediction markets tied to war and U.S. military operations, some lawmakers are now turning their attention to offshore platforms operating beyond the reach of U.S. regulators. In a letter sent this week, Massachusetts Reps. Seth Moulton and Jim McGovern, as well as other Democratic lawmakers, urged the Commodity Futures Trading Commission (CFTC) to take action against platforms like Polymarket, arguing that the agency already has authority under the Commodity Exchange Act (CEA) to challenge foreign-based activity when it has a “direct and significant” connection to U.S. commerce.
Polymarket’s international platform, which operates outside the U.S. regulatory framework, has been the source of many of the contracts that have drawn headlines and congressional scrutiny. Top rival Kalshi, a CFTC-regulated exchange, has repeatedly pointed to that distinction as criticism of prediction markets has intensified.
Those opposing the markets, including Moulton and McGovern, have questioned the morality and legality of the event contracts, while also citing concerns that government officials and others may be profiting from them by using non-public information.
“There is something deeply sick about turning war into a gambling opportunity. We’re talking about people betting on bombings, bloodshed, and military action as if human lives are just numbers on a screen,” McGovern said in a news release about the CFTC letter. “These are not harmless wagers. They raise serious moral and legal concerns, especially when people may be trading on inside information about U.S. military operations. The CFTC needs to enforce the law and bring real oversight to these markets.”
Controversial markets on offshore platforms draw renewed scrutiny
A recent exchange between Moulton and Polymarket on social media highlighted the type of contracts that have fueled growing criticism of offshore prediction platforms.
In the days leading up to the CFTC letter, Polymarket’s international platform offered a market allowing users to trade on whether U.S. service members shot down over Iran would be rescued, drawing backlash from lawmakers and other observers. Moulton posted on X that the contract was “disgusting” and questioned how it could be allowed in the first place.
Polymarket responded to several critical posts, including Moulton’s, saying the contract “should not have been posted” and that it did not meet the platform’s integrity standards, adding that it had been removed after slipping through internal safeguards.
The episode is the latest in a series of controversial markets tied to war, geopolitics, and government actions that have largely appeared on offshore platforms rather than U.S.-regulated exchanges.
Lawmakers say CFTC already has authority to act on offshore markets
The Iran rescue market, and Polymarket’s acknowledgment that it should not have been listed, highlight the concerns raised by lawmakers in their recent letter, which argues that regulators may already have the authority to act against such contracts, even when they originate outside the United States.
Moulton and McGovern’s letter, which was also signed by Reps. Greg Casar (D-TX), Jamie Raskin (D-MD), Dina Titus (D-NV), Gabe Amo (D-RI), and Yassamin Ansari (D-AZ), is addressed to CFTC chairman Michael Selig. It explicitly asks why the agency hasn’t taken any action against offshore platforms offering trades tied to U.S. military operations.
“The prevalence of event contracts that appear to flout United States law is concerning and indicative of a sector lacking proper oversight,” the letter states. “Although many of the most flagrant recent trades occurred outside the United States, this should not preclude the Commission from undertaking enforcement actions to uphold and enforce United States law.”
The lawmakers assert that the CFTC can “regulate insider trading and violations of US law occurring within swaps contracts outside of the United States” and cite passages from the CEA to support their assessment.
“These provisions make it clear that the CFTC has the authority to police insider trading in swaps markets and should apply its existing rule prohibiting bets relating to terrorism, assassinations, and war,” the lawmakers wrote. “This should especially be clear for contracts that are as morally obscene as betting on military action in Venezuela and Iran. Such corrupt trades deserve swift and decisive oversight. Allowing these contracts to persist raises troubling concerns about the Commission’s desire and capacity to fulfill a global regulatory role.”
CEA provisions outline potential enforcement path
The lawmakers’ argument rests on a combination of CFTC rules and provisions in the Commodity Exchange Act that could give the agency a pathway to act against certain offshore markets.
They first point to Rule 40.11, a CFTC regulation issued under the CEA. The rule states that a registered entity may not offer any “agreement, contract, transaction, or swap” that “involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law.” While that rule applies directly to CFTC-regulated platforms, lawmakers argue it reflects a policy stance against certain types of event contracts.
The lawmakers also cite the CFTC’s anti-manipulation authority under Section 6(c)(1) of the CEA, which bars the use of “any manipulative or deceptive device or contrivance” in connection with swaps. They argue the agency has authority under the CEA to apply its rules and regulations to prevent evasion of its underlying swaps provisions, suggesting that relocating activity outside U.S.-regulated platforms would not necessarily place it beyond the agency’s reach.
The central provision cited in the letter is Section 2(i) of the CEA, which addresses the CFTC’s authority over activity outside the U.S. The statute states that its swaps provisions apply to foreign activity when it has a “direct and significant connection with activities in, or effect on, commerce of the United States.”
Lawmakers argue that language gives the agency a basis to extend its rules and enforcement powers beyond domestic platforms, particularly where U.S. participants are trading in those venues or where the activity has a measurable effect on U.S. commerce.
Enforcement actions show how offshore platforms can fall under U.S. jurisdiction
Recent court rulings and enforcement actions show the questions raised in the letter are being tested in practice and, in some cases, have already been addressed by regulators.
In a decision earlier this week, a federal appeals court found that Kalshi was likely to succeed in arguing its event contracts qualify as “swaps” under the CEA, concluding they “fit within the Act’s definition of ‘swaps’ subject to the CFTC’s jurisdiction.” The court added that an event need only be “associated with a potential financial, economic, or commercial consequence” to meet that definition, reinforcing the view that event contracts can fall within federal derivatives law.
That interpretation aligns with how regulators have approached offshore derivatives platforms in recent years, particularly in cases where U.S. users were able to access those platforms.
In one of the most prominent cases, the CFTC and other U.S. authorities pursued offshore crypto derivatives exchange BitMEX for allowing U.S. individuals to trade without registering or maintaining required compliance programs. The platform ultimately agreed to pay a $100 million civil penalty after regulators found it had failed to implement safeguards to identify and restrict U.S. customers.
More recently, the CFTC took action against Binance, another globally operated exchange, alleging it knowingly allowed U.S. users to access derivatives trading services on its platform. The case resulted in a sweeping settlement requiring Binance to disgorge $1.35 billion in fees and pay an additional $1.35 billion civil penalty to the CFTC, while its founder, Changpeng Zhao, was personally fined $150 million.
U.S. access to Polymarket could determine whether regulators act
The question of whether Polymarket knowingly allows, or fails to adequately prevent, people in the U.S. from trading on its international platform could be key to any potential CFTC action.
The company has already faced regulatory action on that front. In 2022, Polymarket agreed to a settlement with the CFTC requiring it to pay a $1.4 million civil penalty and cease offering event contracts to U.S. users after regulators found it was operating an unregistered derivatives platform.
After that action, Polymarket shifted operation of its international exchange to Adventure One QSS Inc., a Panama-based entity, while the company itself remains headquartered in New York.
Rather than attempting to reopen its offshore platform to U.S. users, Polymarket pursued a regulated path back into the U.S. market. Late last year, the company soft-launched a separate, CFTC-regulated exchange that initially focused on sports contracts before expanding into political markets more recently.
Polymarket’s published policies on its global platform state that U.S. users are barred from trading and that using tools like VPNs to bypass geographic restrictions is “strictly prohibited.”
But a recent report by Sportico indicates that users in the U.S. and other restricted countries are indeed using VPNs to access the platform, calling the method an “open secret online” and noting that forums and posts on Reddit, X and Discord explain exactly how to gain access to trading. The platform does not require identity verification, the report says, and using crypto wallets to fund accounts provides another layer of anonymity.
That dynamic mirrors past enforcement cases, where the effectiveness of U.S. access restrictions has been central to determining jurisdiction.
Lawmakers press for answers as deadline approaches
The letter sent to the CFTC by Moulton and McGovern makes clear that lawmakers are not just raising concerns, but demanding specific answers from the CFTC.
In a series of questions for Selig, the lawmakers ask whether the agency has investigated offshore platforms offering contracts tied to U.S. military operations, what steps it has taken to address potential insider trading, and why it has not pursued enforcement despite what they describe as clear authority under the CEA.
The letter requests a response from Selig by April 15.
