House Democrats are calling on the federal government to lower foreign market war chests

A group of House Democrats pressed the Commodity Futures Trading Commission in a letter sent on Monday evening about why the agency did not suffer bets placed on war and other government actions in the foreign exchange markets.

The letter to CFTC Chairman Michael Selig, first obtained by CNBC, questions the agency’s role in regulating prediction markets, which have become more common recently and have angered a growing number of lawmakers.

“Recent high-profile cases of alleged insider trading on predictive market platforms related to US government actions – including military intervention in Venezuela and our recent attack on Iran – have raised concerns that the CFTC does not have sufficient oversight over these fast-growing markets,” wrote the group, led by Reps. Jim McGovern and Seth Moulton, Massachusetts Democrats.

The timing of the ouster of Venezuelan President Nicolas Maduro and the US-Israeli attack on Iran have raised concerns about the possibility of insider trading. In popular prediction markets like Kalshi and Polymarket, users can buy event contracts on things like who will win the NCAA men’s basketball national championship or how long the Department of Homeland Security shutdown will last.

Kalshi is based in the US and claims to ban controversial bets on topics such as war and is regulated by the CFTC. Polymarket is an offshore company – although it’s available in the US for a limited time – and has been the site of some headline-grabbing event contractors. Both of these companies have recently announced channels set up to prevent insider trading on their platforms.

But House Democrats say more can be done to regulate foreign businesses as well. The CFTC’s internal rules, along with the Commodities Exchange Act, allow the agency to regulate when “activities exchanged outside the United States have a direct and significant relationship with the activities of, or affect, the business of the United States,” the lawmakers wrote.

“These provisions make it clear that the CFTC has the authority to police insider trading in the swaps market and should apply its existing rule prohibiting bets related to terrorism, assassinations and war,” the group wrote.

The CFTC and Polymarket did not immediately respond to requests for comment on Tuesday.

Democratic Reps. Rhode Island’s Gabe Amo, Texas’ Greg Casar, Maryland’s Jamie Raskin, Nevada’s Dana Titus, and Arizona’s Yassamin Ansari also signed. They questioned why the agency has not taken public action against such bets, and whether it feels it has the power to regulate intra-market trading. And they asked if the CFTC had been notified of “any conflicts of interest between major market participants and family members of Executive Branch officials, including the President of the United States?”

Donald Trump Jr. is an investor and unpaid consultant to Polymarket, as well as a strategic advisor to Kalshi. The Trump family’s social media company last year announced it would launch its own predictive marketing platform, called Truth Predict.

Lawmakers requested a response from Selig on April 15.

“Such corrupt businesses deserve urgent and firm attention. Allowing these contracts to continue raises troubling concerns about the Commission’s desire and ability to fulfill its global regulatory role,” they wrote.

Lawmakers have been grappling with how to defund trading platforms, introducing more bills in recent weeks and months. Some are designed to deal with the threat of insider trading, while others take a broader approach and seek to prevent certain types of event contracts, including sports, government actions and war.

Moulton last month announced an office-wide policy banning his staff from using the stock market in full. A group of Democratic senators in January sent Selig a separate letter outlining their concerns about contracts for events that “incite bodily harm or death.”

Meanwhile, Selig has gone after states that have tried to regulate the prediction markets, arguing that authority belongs to the federal government. The CFTC last week sued three states – Arizona, Illinois and Connecticut – that had issued cease-and-desist orders to the futures markets saying they violated gambling laws. On Monday, a federal appeals court in New Jersey ruled that gaming authorities cannot ban the use of Kalshi to bet on sporting events.

“What we’re seeing is an attempt by state gaming commissions to overturn federal law,” Selig said Monday on CNBC’s “Squawk Box,” before the New Jersey decision was released.

Disclosure: CNBC and Kalshi have a business relationship that includes a minority investment by CNBC.