Hobbs bars Arizona state employees from using inside information to bet on prediction markets

Gov. Katie Hobbs issued an executive order barring state employees from using insider information to make money on prediction markets.

Prediction markets allow users to trade so-called event contracts, which are essentially bets on the outcomes of different situations, from sports to elections to warfare.

Amid reports that Washington insiders may be using privileged information to gain an edge and earn big profits on markets like Kalshi and Polymarket, Hobbs is barring most state-level employees from using non-public information they glean from their jobs to make trades on those markets.

Hobbs called the order a preventative measure inspired by those issues at the federal level, including a soldier who was charged in April with using classified information to make bets related to the U.S. military operation to capture Venezuelan leader Nicolás Maduro.

“We have to ensure that our state employees are acting at the highest level of ethical standard and not using the information they have as a state employee to personally gain,” Hobbs said.

Employees who violate the order could be fired, referred to law enforcement or face “other appropriate sanctions.”

Other agencies

The order applies only to executive branch employees who fall under the governor’s authority, such as people working at most state agencies that report to the Governor’s Office.

Hobbs encouraged the judicial and legislative branches, along with independent boards and commissions, to adopt similar rules.

Senate President Warren Petersen (R-Gilbert), who is running for attorney general, said he would support creating such a rule for lawmakers and legislative staff.

“I would support that as a rule change but I find it curious that she has now vetoed twice our transparency bills that would make sure she is not doing pay to play,” Petersen said, referring to Republican procurement reform bills that would have required state contractors to disclose campaign donations to a governor’s campaign.

The bills were inspired by reporting showing a state group home contractor received significant rate increases after its owner donated to Hobbs and other Democratic campaign efforts.

Arizona Supreme Court Chief Justice Ann Scott Timmer said the court already has rules in place that appear to address the issues brought up by Hobbs.

That includes rules requiring employees to avoid using their position for personal gain, “uphold and promote the independence, integrity, and impartiality of the judiciary” and “avoid impropriety and the appearance of impropriety.”

Another rule states that “[a] judicial employee shall not intentionally disclose or use nonpublic information acquired in an official capacity for any purpose unrelated to the employee’s duties.”

“Thus, it appears we already have rules/policy in effect that the Governor is addressing,” Timmer said in a statement. “However, since she’s asked all branches to look, we’ll review our code to make sure it’s sufficient.”

Arizona Corporation Commission Chair Nick Myers said he also supports looking at the issue.

"The ACC is supportive of establishing clear ethical standards that prohibit government employees from using nonpublic information to profit from prediction markets," he said in a statement. "In light of the Governor’s recent executive order, the ACC may consider a formal policy for its own agency that prohibits Commission employees from using their position and knowledge for financial gain.”

Industry response

A spokesperson for Kalshi, the largest prediction market in the U.S., praised the new regulations.

“Kalshi already bans insider trading and imposes penalties for violations. Formalizing this and making it an industry standard across all prediction markets is a welcome measure,” said Kalshi spokesperson Jacki McGavick.

The platform has faced allegations of insider trading in the past, though.

NPR reported the Department of Justice is currently investigating former Congressman George Santos for insider trading on Kalshi. Kalshi is also attempting to crack down on campaign staff who use it to trade on election information, with mixed results, NPR reported.

Polymarket, one of Kalshi’s competitors, did not comment specifically on Hobbs’ order but said it also “surveils and monitors for insider trading and other illegal activity.”

“The transparency of the blockchain provides the public with a real-time view of all trading activity, which allows us to efficiently identify and trace potential wrongdoers, as well as allowing the general public to flag suspicious trading activity,” a spokesperson said in a statement. “Although we do not discuss pending investigations or specific matters, our internal process has led to nearly 100 wallet referrals to law enforcement to date including the referrals that resulted in the only arrests and first and second prediction markets insider trading cases charged in the United States.”

Gannon Ken Van Dyke, the soldier accused of trading on insider knowledge of the Maduro operation, allegedly made more than $400,000 on Polymarket.