Democratic Senators Urge CFTC to Ban Wildfire Prediction Markets Over Arson and Insider Trading Risks

A group of nine Democratic senators has formally petitioned the Commodity Futures Trading Commission to ban derivative contracts linked to natural disasters, targeting event markets that allow users to speculate on destructive wildfires.

In a letter addressed to CFTC Chair Michael Selig, Sens. Jeff Merkley (D-Ore.), Alex Padilla (D-Calif.), Adam Schiff (D-Calif.), and six colleagues demanded regulatory intervention before the next wildfire season begins. The push follows data showing that offshore prediction platform Polymarket processed over $1.2 million in trading volume on California’s Palisades and Eaton fires in 2025.

Lawmakers warned that financialized speculation on active disasters creates moral hazard and severe physical security threats, pointing to warnings from local fire officials.

“Offering bets on destructive wildfires threatens to minimize communities’ suffering all so the rich and powerful can profit,” the Senators wrote. “There’s also the heightened risk—according to state and local fire officials—that individuals could be tempted to commit arson in order to make sure their bets are successful.”

The congressional push highlights growing concern over how prediction platforms price real-world outcomes as newer platforms, such as Dastan-owned Myriad, expand across crypto and traditional markets. Lawmakers argued that allowing retail and institutional traders to stake capital on ecological catastrophes incentivizes malicious behavior on the ground.

“By offering contracts on fires, prediction market sites run the risk of encouraging people to influence fires that have already started, creating additional concerns around public safety and insider trading,” they wrote.

While disaster-related volume remains concentrated on offshore venues, lawmakers cautioned that domestic venues could soon attempt to replicate the model under federal oversight.

“While these bets appear to be offered only on the offshore Polymarket site, it is only a matter of time before other U.S. based Designated Contract Markets (DCMs) try to offer these,” the letter said. “The CFTC must lead the charge to rein in these contracts in the U.S. and offshore and put in place common-sense guardrails to prevent people from profiting as wildfires threaten communities.”

The congressional mandate comes during a turbulent period for prediction market regulation, marked by jurisdictional clashes between state officials and federal agencies. In May, Minnesota enacted a state-level ban on prediction markets, triggering a federal lawsuit from the CFTC and the Department of Justice, which argued the state law unlawfully infringed on federal oversight authority.

State-level resistance has continued to mount elsewhere. Kentucky filed suit in June against Kalshi and Polymarket, alleging the platforms were operating illegal sports betting operations. That same month, a federal judge in Michigan ruled that sports prediction markets fall outside the CFTC’s jurisdiction, adding further legal ambiguity to the agency’s authority over event-based derivatives.

Despite mounting legal scrutiny, institutional projections suggest rapid commercial expansion for the sector. Investment bank Bernstein estimated in April that annual trading volume across prediction markets could reach $1 trillion by 2030. Political sentiment has also shifted, with President Donald Trump softening his stance on prediction platforms after previously describing the sector as “a casino.”