A Swap By Any Other Name, Part II: The Sixth Circuit Appears Skeptical And A Soldier Tests The Limits Of The CEA

The debate over prediction markets has been simmering for years, but recent developments suggest a significant shift in the regulatory landscape may be underway. In the courts, the Sixth Circuit’s skeptical questioning of Kalshi’s contracts as swaps under the Commodity Exchange Act (CEA) has set off alarm bells among industry players and observers. Meanwhile, a former special forces soldier’s motion to dismiss his indictment for alleged insider trading on Polymarket raises fundamental questions about the nature of these markets.

The Sixth Circuit oral argument was notable for its tone and tenor. Judges Eric Clay, Rachel Bloomekatz, and Julia Gibbons were not hesitant in expressing their skepticism regarding Kalshi’s position that event contracts are swaps under the CEA. Judge Clay’s pointed questioning of Kalshi’s attorney highlighted a growing concern among courts: whether these markets are being regulated by Congress or simply exploited for federal jurisdiction.

This skepticism is unsurprising, given the circuit court split on this issue. While some judges treat prediction market contracts as mere extensions of traditional financial derivatives, others push back against what they see as an attempt to sidestep state regulation and congressional intent. Ohio’s Solicitor General noted that Kalshi’s reading of the Dodd-Frank Wall Street Reform and Consumer Protection Act could have far-reaching implications – potentially redefining sports bets as swaps that should have been traded on federally regulated exchanges since 2010.

The states’ arguments against Kalshi are gaining traction. They point out that prediction markets often blur the line between financial risk management and traditional forms of wagering. Tennessee’s Assistant Attorney General described Kalshi’s products as “classic parimutuel wagering,” a form of peer-to-peer gambling that has been regulated by states for centuries. The states also press Kalshi on its stance regarding contracts that link together sports and prediction markets – such as the number of corner kicks in a soccer match or granular player propositions.

Kalshi responds to these concerns by arguing that courts should not treat individual examples as dispositive because sports in 2026 are a “huge business,” with economic consequences extending through sponsors, networks, and advertisers. This attempt to expand the scope of prediction markets beyond traditional financial derivatives raises questions about accountability and regulatory oversight.

The Van Dyke case highlights another pressing issue: can you commit insider trading on a prediction market? The indictment against Gannon Ken Van Dyke alleges that he made over $400,000 in Polymarket wagers using inside information. If true, this would represent a significant expansion of the concept of insider trading into new and uncharted territory.

A Sixth Circuit ruling siding with the states could join the Ninth Circuit’s apparent skepticism and create a split with the Third Circuit – potentially paving the way for the Supreme Court to take up the issue. The Van Dyke case raises fundamental questions about the nature of prediction markets and their relationship to traditional financial markets.

As we wait for the courts to render their verdicts, one thing is clear: the prediction market landscape is shifting rapidly. It remains to be seen whether Kalshi’s position will prevail in the Sixth Circuit or if the Van Dyke case will set a new precedent for insider trading on these platforms. But it is certain – we are witnessing a significant moment of reckoning for these markets, and the regulatory framework that governs them.