Betting on Washington: Prediction Markets and Congressional Scrutiny After the Midterms

With Democrats set to control both chambers of Congress this upcoming January, investigative priorities are sure to change, but prediction- and betting-market operators don’t need to wait for the new Congress to be seated to prepare for that shift. Both sides of the political aisle are already scrutinizing the industry, with lawmakers questioning whether platforms adequately detect and prevent trading based on nonpublic information.

For prediction market and betting companies offering or partnering on event-contract products, these initial inquiries provide a practical warning: preparation should address how safeguards operate, not simply whether written policies exist.

An investigation already underway

This May, House Oversight Committee Chairman James Comer (R-KY) opened an investigation into Kalshi and Polymarket. In September, he expanded the inquiry to Hyperliquid Labs, Crypto.com and Aristotle Exchange, requesting information about identity verification and measures to identify and prevent suspected insider trading. The committee reported receiving nearly 1,000 documents and five briefings from Kalshi and Polymarket representatives.

Democratic lawmakers are pursuing the issue separately. Representative Chris Pappas, now Senator-elect (D-NH), joined colleagues in urging the Justice Department to prioritize investigations and actions targeting suspected prediction-market abuses.

These developments demonstrate that bipartisan interest exists in scrutinizing these companies.

What will the election change?

With Democrats taking control of Congress, the emphasis of that scrutiny is set to change. Existing requests focus on market integrity and potential exploitation of sensitive government information, but the Democratic majority will likely pursue answers regarding politically connected business relationships as well.

NBC News reported on Trump Media’s prediction-market arrangement with Crypto.com and Donald Trump Jr.’s relationships with Polymarket and Kalshi. The White House and a representative for Mr. Trump Jr. denied involvement in business dealings connected to presidential responsibilities or administration policy relating to prediction markets.

But this illustrates that companies should be prepared to distinguish documented relationships from allegations and have at-the-ready accurate explanations of their commercial arrangements.

That scrutiny will also likely extend to relationships with government officials and politically connected advisers and investors. Operators should be prepared to explain the nature and terms of those relationships, distinguishing documented arrangements from allegations of improper influence.

AI, algorithms, and addiction

Scrutiny is also likely to reach personalized promotions and VIP programs, including whether behavioral data is used to identify and target vulnerable or losing customers rather than protect them. Recent litigation alleges addictive app design, algorithmic inducements during financial distress, and inadequate intervention when customer tracking reveals loss-chasing behavior. These allegations are not established findings, but they identify questions operators should be prepared to answer about their product design, incentives, and customer-protection practices.

Regulation, litigation, and sports-betting guardrails

Operators should also expect pointed questioning on whether event-contract products avoid state sports-betting protections. Bipartisan legislation and continuing federal-preemption litigation make this a hot-button issue. The practical inquiry will concern not only which regulatory regime applies, but also whether customer protections function as represented.

A separate avenue: State attorneys general investigations and enforcement

State attorneys general are not likely to wait for Congress. New Mexico Attorney General Raúl Torrez has already sued Kalshi over allegedly unlicensed sports betting and underage participation. Federal preemption remains contested, but state enforcement presents an immediate risk.

Operators should also anticipate pre-suit demands for evidence. Existing consumer-protection powers include civil investigative demands for relevant documents, subject to statutory limits and privilege. Potential requests may concern algorithmic targeting, VIP incentives, self-exclusion controls, and internal knowledge of customer harm. Preparing those records and assessing applicable protections should be part of the response strategy before litigation begins.

New Mexico’s Meta litigation illustrates the potential stakes. The state recently obtained $942 million in penalties and abatement funding, together with court-supervised child-safety reforms. Then, in October 2026, a New Mexico state court entered a landmark $25 billion judgment against Meta after a jury found nearly 44 million willful violations of the New Mexico Unfair Practices Act arising from deceptive representations concerning Facebook’s data practices and other platform policies. Torrez’s subsequent AI warnings and OpenAI inquiry signal scrutiny extending beyond social media.

Demonstrate the controls

Proper preparation should begin with the questions that Congressional committees are already asking, namely how platforms identify customers, verify geographic location, and detect, investigate and report suspicious activity.

Trading safeguards should also address market integrity and contract settlement. Operators should be prepared to explain how settlement terms are applied, how disputed outcomes are handled, and how suspected insider trading is investigated and escalated.

Operators should assess whether their records demonstrate implementation of those controls. Relevant materials will include verification records, surveillance alerts, escalation decisions, account restrictions and remediation documentation. Where practices differ from written policies, companies should investigate those discrepancies before making representations to lawmakers.

The same implementation-focused review should extend to self-exclusion, deposit limits, cooling-off periods, and promotional disclosures. Operators should be prepared to demonstrate that those protections work in practice—not merely appear in policies or contractual terms and conditions. That assessment should include how behavioral alerts affect promotional targeting, VIP incentives, and intervention when customers exhibit loss-chasing behavior.

Finally, executives should be able to explain both the capabilities and limitations of their systems. Categorical statements suggesting that controls eliminate all misconduct should be avoided, as they create credibility problems that will make it more difficult to navigate individual incidents when they inevitably emerge.

Coordinate the response

If a company believes it may be targeted by a Congressional investigation, it should begin identifying the personnel and records necessary to respond to document requests and preparing potential witnesses. Legal, compliance, technical, government affairs and communications teams should work from a consistent, verified factual account.

Preparation for Congressional investigations should also account for potential parallel civil and criminal proceedings, particularly given lawmakers’ past calls for Justice Department action. Decisions about document production, testimony, and public statements should be coordinated rather than handled in isolation.

Legal, compliance, data, and government-affairs teams should coordinate responses to overlapping Congressional inquiries, regulatory disclosures and litigation, including state AG investigations. A consistent account should connect trading safeguards, settlement practices, customer-protection controls, and government-linked relationships, while distinguishing verified facts from allegations. Inconsistent descriptions of the same conduct across proceedings will unfortunately undermine an otherwise sound response.