A number of conveniently timed, highly lucrative predictions market bets on world events have raised eyebrows recently. Events like the capture of Venezuelan President Nicolás Maduro, and the timing of the war with Iran. Leaving aside the national security implications, there’s concern that people with access to government secrets might be using them to turn a quick profit in a lightly regulated industry.
A group of House Democrats called on regulators Tuesday to go after war bets on offshore platforms. Lawmakers have also introduced several bills to rein in prediction market activity.
Kalshi and Polymarket have announced new policies to crack down on insider trading, and the federal Commodity Futures Trading Commission, which oversees the platforms, named it as an enforcement priority.
But laws preventing insider trading in commodities markets are more recent and untested than you might think. To understand how they work, it helps to get familiar with
the 1983 movie “Trading Places,” which turns on a plot to trade on government secrets.
It’s definitely a movie of the ‘80s, and there’s a lot going on. Basically, Eddie Murphy plays a down-on-his-luck conman, and Dan Aykroyd is a hoity-toity commodities broker.
Aykroyd’s evil bosses, the Duke brothers, enact a convoluted scheme to make the two trade places as a social experiment. Then, Murphy and Aykroyd team up to get revenge.
They intercept a secret U.S. Department of Agriculture report on the orange crop the Dukes were planning to use to make a killing on orange juice futures. They feed the Dukes a fake report, then they use the real secret information to get rich themselves and retire to a tropical paradise.
The setup is pure Hollywood, but the idea that you could get away with a scheme like this was accurate, said Andrew Verstein, a law professor and co-director of the Lowell Milken Institute for Business Law and Policy at UCLA.
“For most of American history, if you came to have some information that gave you a really strong sense of what was going to happen in commodity prices, you could trade commodity futures and options and make money with that information, and there wouldn't be any possible legal consequence to you,” he said.
Commodities were seen as different from stocks: They don’t have shareholders who would get screwed over by share price manipulation, and most people trading in the markets — like farmers with knowledge of their own crops — are insiders to a certain extent.
“The CFTC chairman had gone to Congress and said, ‘We actually do want to be able to prosecute insider trading. We saw the movie ‘Trading Places,’ and we want that stuff to be illegal,’” he said.
