CNBC Investigations: Gamble on Democracy

Kalshi

Across the shows: 1 speaker in other episodes, 0 bullish and 1 bearish calls, past 30 days

• Michelle Kendler Kretsch · Anti-Corruption Data Collective (ACDC)Bearish

  Kalshi's claim that the Pratt market corrected within seconds omits a three-hour window where the price stayed elevated.

  Kalshi published a case study titled 'Price Distortion in LA Mayor's Race Corrects Within Seconds', which relied on a short window after a large purchase. Kretsch says that window left out what came next. Kalshi itself told ACDC the same trader kept buying, and over a three-hour window the price stayed elevated. Measured that way, the Pratt contract was up 3¢, meaning a 3% chance on the November race, and a trader could read that as support for Pratt's chances. She says this is the vulnerability in price shifts and that Kalshi's correction claim is not the full picture.

  “Kalshi tells us that it's the same trader who's continuing... They continue to buy and buy and buy. And that actually elevates the price when you look at not a half hour window, but a three hour window. So they left out the three hour look.”at 11:52

Sports, betting & prediction markets

• Michelle Kendler Kretsch · Anti-Corruption Data Collective (ACDC)

  Election prediction-market contracts are vulnerable to unusual price spikes, and manipulation cannot be ruled out.

  ACDC's analysis found price spikes in election markets. Of 167 congressional markets worth more than $100,000, about 23% had prices move 30¢ or more. In the Illinois Senate example, $5,000 of buying moved a contract from 47¢ to 79¢, and it was pushed to 99¢ by later purchases. In the LA mayor race, one series of trades spent $56,000 and gave up about $8,000 of potential profit. Kretsch argues a spike that costs the buyer profit has no profit motive, which she calls a red flag, and that the platforms' price-correction story rests on incomplete data. She says intent can't be established, but the outside world has no view of who is behind each trade and must trust the platforms' KYC systems. Her main worry is that when an election result differs from the market odds, the damage is to confidence in the election itself.

  “there's many questions on why someone would do that. So to you, that's a red flag. A price spike doesn't have a profit motive.”at 6:21

• Jared DeMarinis · Maryland State Board of Elections

  Prediction markets threaten election legitimacy; he wants them banned and election staff barred from trading them.

  DeMarinis, Maryland's state elections administrator, says prediction markets will amplify scrutiny and apprehension about the current election landscape. He points out that the state employs 26,000 election judges (poll workers) who see results before they are officially tallied and counted, and that betting markets on those results create a conflict that goes to the legitimacy of the process. The narration reports that he asked the state prosecutor to investigate whether prediction markets violate state laws against election betting, and in September barred election staff from trading in these markets. Per the report, he says the only way to protect election integrity is an outright ban. Federal CFTC regulation of the platforms and state gambling laws are in dispute, with New Jersey asking the Supreme Court to weigh in.

  “They have access to information right before it's getting tallied officially and counted. They'll know certain things. This is all problematic because it goes to the legitimacy...”at 19:11