Defense Secretary Pete Hegseth issued a memo warning military personnel against using nonpublic information to make bets on prediction markets, saying the wagers could give important clues to enemy countries.
“Do Not Compromise Military Operations for Personal Financial Gain,” said the subject line of an October 20 memo published yesterday by CBS News. Hegseth’s memo was sent to senior Pentagon leadership, Combatant Command leaders, and Defense Department field activity directors.
Our enemies watch movements in these markets. When an American Service member, intelligence professional, or other Department civilian engages in a financial transaction on a military outcome, they create a signal. That signal can be aggregated, correlated, and exploited by hostile foreign intelligence services to anticipate our movements, targets, and timing. The lives of our Service members often depend on the enemy not knowing what is coming. The men and women who carry our flag into harm’s way deserve a Force that protects them—not one that exposes them to the enemy for personal gain.
In April, a US Army soldier was arrested and charged with using confidential information to make $410,000 in Polymarket bets on the timing of the military’s capture of Venezuelan President Nicolás Maduro. An August report by the Anti-Corruption Data Collective said the group found 152 suspicious wallets that placed longshot bets on military and defense markets and won a combined $8 million.
Betting can warp judgment, Hegseth says
Hegseth’s memo said the prohibition applies to “all financial platforms,” including traditional betting services and prediction markets such as Polymarket and Kalshi. Defense Department personnel may not make any financial transaction informed by nonpublic information, regardless of whether that information is classified or unclassified, Hegseth wrote.
“All Department of War personnel are prohibited from engaging in financial transactions using nonpublic information, either directly or indirectly through a third party… Violations may result in administrative, disciplinary, and, where appropriate, criminal action under the Uniform Code of Military Justice and/or applicable federal law,” Hegseth wrote.
The memo said betting on military matters related to a person’s job can warp one’s judgment. “Beyond operational security, financial stakes can warp judgment,” he wrote. “A logistician with money riding on a strike date has an interest in that date. An analyst with a position on an outcome has an interest in that outcome.”
Kalshi and Polymarket both prohibit insider trading. But criminal charges of the sort described by Hegseth are sure to be a bigger deterrent than being banned from the Kalshi or Polymarket platforms.
White House issued warning after suspicious bets
This was not the first warning issued internally by the Trump administration, The Associated Press wrote yesterday.
“A group of new accounts on Polymarket made highly specific, well-timed bets on whether the US and Iran would reach a ceasefire just before President Donald Trump announced it in April, resulting in hundreds of thousands of dollars in profits for the new customers,” the AP wrote. “The White House warned staff against using private information to trade on prediction markets the same day the report came out.”
In another incident, a Trump teleprompter aide reportedly made $100,000 on Kalshi by betting on what Trump would say in prepared remarks.
Prediction markets have flourished under the Trump administration’s light-touch approach to regulation. The Trump administration is also trying to stop state governments from regulating the markets, arguing that state laws are preempted by the Commodity Futures Trading Commission’s exclusive jurisdiction. Courts have reached different conclusions, and state governments want the Supreme Court to uphold their right to impose restrictions on prediction-market gambling.
Jon BrodkinSenior IT Reporter
Jon BrodkinSenior IT Reporter
Jon is a Senior IT Reporter for Ars Technica. He covers the telecom industry, Federal Communications Commission rulemakings, broadband consumer affairs, court cases, and government regulation of the tech industry.
Source: arstechnica.com
