Kalshi refuses $54 million payout, insider trading controversy heats up in prediction markets

Prediction market platform Kalshi announced that it would not pay users the expected approximately $54 million compensation for the outcome of Iran’s Supreme Leader Khamenei’s death, citing that the platform’s “out of power” contract definition does not cover assassination scenarios. The incident also triggered insider trading suspicions against competitor Polymarket, with U.S. senators immediately indicating they would push legislation to ban government action-related prediction market contracts.

Kalshi Settlement Dispute: “Out of Power” Definition Sparks Contract Dispute

After the U.S. and Israel launched a joint airstrike on Tehran, Kalshi actively promoted event contracts asking whether Khamenei was “out of power,” and publicly displayed on social media that the probability of his removal had risen to 68%. Following confirmation of Khamenei’s death, some users’ systems showed their bets as successful, but the platform immediately announced that settlement would be based on the last traded price before Khamenei’s death was confirmed, rather than paying out based on the final result.

Kalshi CEO Tarek Mansour explained, “‘Out of power’ in the contract includes resignation or peaceful transfer of power, but assassination is not within the scope of the definition.” The platform offered to compensate for trading losses during the clarification period but refused to pay the full winnings.

User expected total payout: approximately $54 million (based on the outcome of Khamenei’s death)

Platform actual plan: refund the principal of bets, plus handling fees and compensation for losses during the clarification period

Typical user loss: One user invested a total of $3,460, initially expecting to win about $63,000, but ultimately received no payout

Amanda Fischer, former chief of staff at the U.S. SEC and current policy director at Better Markets, pointed out that many participants actually viewed such contracts as “death market” trades. She directly questioned, “An 86-year-old supreme leader of a theocratic state—how else could he lose power besides death?” She believes this incident exposes structural definitional loopholes in the prediction market industry.

Insider Trading Allegations Surface: Political-Related Accounts Suspected of Early Knowledge of Military Action

The controversy surrounding Kalshi has not yet subsided, and competitor Polymarket also faces similar accusations. Bubblemaps indicated that six suspected related accounts profited about $1.2 million by betting on the U.S. strike against Iran on February 28, with the betting dates closely aligned with the launch of “Operation Epic Fury.”

Further concerns about political connections deepen—former U.S. President Donald Trump Jr., the son of Donald Trump, joined Polymarket’s advisory board last August. In January, a similar incident occurred: an anonymous Polymarket trader accurately predicted the timing of the U.S. military’s capture of Venezuelan President Maduro, winning about $400,000 in a short period, raising widespread questions about the platform’s trading compliance framework.

Regulatory Pressure Mounts: U.S. Plans Legislation to Restrict Government Action Prediction Markets

U.S. Connecticut Democratic Senator Chris Murphy publicly criticized these prediction markets as “dystopian,” claiming they “package good and evil, life and death, and war into financial products,” distorting public judgment of right and wrong. He stated he is drafting legislation to prohibit prediction contracts related to government actions and war, arguing that such trades could undermine public decision-making processes and create incentives for insider trading.

Murphy directly commented on the Polymarket insider trading suspicion: “It’s crazy that this is even legal,” and said he will push for legislation to prevent such behavior as soon as possible.

Frequently Asked Questions

Q: Why did Kalshi refuse to pay the $54 million payout?
Kalshi cited platform rules, asserting that their contracts do not settle based on death. The “out of power” definition includes resignation or peaceful transfer of power but excludes assassination. The platform offered to compensate losses during the clarification period but refused to pay the full winnings based on Khamenei’s death outcome.

Q: Why is insider trading in prediction markets difficult to regulate?
Prediction markets operate through event contracts, and if traders gain non-public information about government actions or military strikes in advance, they can place highly accurate bets for profit. Existing financial regulatory frameworks lack clear definitions and jurisdiction over such behaviors, and platforms themselves lack standard mechanisms to detect abnormal trading activities.

Q: What is the status of U.S. legislation regulating prediction markets?
Senator Chris Murphy has explicitly stated he is drafting legislation to restrict government action-related prediction contracts. Details of the draft are not yet public, and the legislative timetable is influenced by political factors. However, the controversies involving Kalshi and Polymarket have significantly accelerated legislative discussions.