Arizona bans state workers from prediction market trading
Arizona Governor Katie Hobbs has signed an executive order prohibiting government employees from engaging in insider trading on prediction markets or disclosing confidential government information to profit from such trading. Employees are prohibited under the order from providing non-public information to relatives, friends, business acquaintances, or any third parties for financial gain via event-based trading platforms.
The executive order is intended to strengthen ethics standards and prevent the misuse of privileged government information as prediction markets continue to expand. Governor Hobbs also encouraged Arizona’s legislative and judicial branches, as well as independently elected officials, to adopt similar ethical standards.
Reason behind order
Prediction markets function by using publicly available information. When government employees use confidential information, the equilibrium breaks down. A government employee who receives early notice of an executive decision, regulatory action, or economic announcement has a distinct advantage over ordinary traders. Instead of anticipating, they know what will happen, making the market an unequal playing field.
Concerns grow when the information includes sensitive procedures. A government employee who is informed of a disaster declaration, trade policy change, or military action may purchase contracts before the general public is aware, benefiting when prices shift.
The second goal is the idea that public service is a public trust. Hobbs believes that government employment entails more than merely compliance. While prediction markets are not technically deemed insider trading, there is a sense that they create a conflict of interest when government insiders profit from sensitive information. Arizona’s restriction avoids uncertainty among employees about the use of personal information.
Key provisions explained
Governor Hobbs’ executive order sets clear boundaries for executive branch employees. It prohibits the use of non-public government information to place trades or wagers on prediction markets and forbids sharing such information with anyone else for financial gain.
The order also defines confidential information more precisely. Any non-public details obtained through government work that could influence prediction market outcomes must be treated as confidential. This definition gives employees a clearer understanding of what cannot be used for personal financial purposes.
Violations carry serious consequences. Employees who misuse or disclose confidential information may face disciplinary action, including dismissal, and could be referred to law enforcement if criminal laws are involved.
Incidents that triggered government action
Arizona’s order follows several incidents that raised national concern. Reports and investigations have shown that individuals are allegedly profiting from prediction markets by using sensitive government information. States concluded that waiting for more scandals would risk reputational damage.
One reported case involved Venezuelan President Nicolás Maduro. According to federal authorities, Gannon Ken Van Dyke, a member of the United States Army, profited from Polymarket contracts using classified information, earning more than $400,000. Whether confirmed or not, the case has already influenced debates about ethics in prediction markets.
Arizona used this incident to demonstrate how quickly risks evolve. The case demonstrates that insider trading no longer requires company boardrooms. Government data can be traded. Arizona’s restriction on employees using confidential knowledge in prediction markets tries to avoid the possibility of similar problems and emphasises the notion that public service should not be used for private profit.
Comparing state approaches
Arizona is not alone in addressing these risks. Earlier this year, California Governor Gavin Newsom strengthened insider trading regulations to specifically include prediction markets. California revised its insider trading standards to expressly encompass event-based trading, rather than implementing new rules. The directive prohibited officials from not only using sensitive information for themselves, but also from assisting others in profiting from insider knowledge. California stated that existing restrictions against the use of confidential government information apply to modern event-based platforms.
Arizona adopted a similar philosophy, but did so during a period when the state was also involved in litigation over the prediction market operator Kalshi. By separating ethics concerns from legal disputes, Arizona made clear that regardless of court rulings, employees cannot use confidential information for personal gain.
Arizona’s legal battle with Kalshi
Arizona is involved in a legal battle with Kalshi, a federally authorised prediction market company. State officials argue that some of Kalshi’s contracts resemble illegal sports betting, while Kalshi claims they are financial products subject to federal oversight. After Arizona regulators issued a cease-and-desist order, Kalshi filed a federal lawsuit, arguing that state law cannot override federal regulations.
Arizona filed charges against Kalshi, alleging that the contracts were similar to sports bets offered without a state licence. Officials also disputed contracts related to elections and economic statistics, viewing them as gambling on a specific outcome. Kalshi rejects these arguments, arguing that its contracts are federally regulated derivatives.
Kalshi sought a temporary restraining order to prevent Arizona from enforcing its law. It was initially denied, but then granted, allowing Kalshi to continue operations despite the ongoing litigation. Arizona’s executive order is unique in that it focuses on ethical behaviour among government personnel.
Future regulation
Arizona’s recent order is being viewed as part of a wider trend towards regulating prediction markets, as these platforms increasingly expand into politics, economics, climate forecasting, and public policy. Arizona’s order underscores that ethical oversight is likely to remain a central issue as courts and regulators work to determine how prediction markets fit within the broader financial system.
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