Sacramento — California Gov. Gavin Newsom on Friday signed an executive order prohibiting state and local public officials from leveraging non-public government information to trade on online prediction markets, the fast-growing platforms that allow users to wager on everything from election outcomes to Federal Reserve rate moves.
The order, made public late Friday afternoon, instructs every agency, department and municipal body in the nation’s most populous state to update ethics policies within 90 days. According to the text, employees who place bets based on confidential data could face administrative fines of up to $20,000 per violation and possible criminal referral. “Public servants must not profit from privileged knowledge,” Newsom wrote in the directive.
Prediction markets, many of which settle trades on blockchain networks, have exploded in volume over the past two years. Sites such as Polymarket and PredictIt regularly see seven-figure trading days tied to U.S. economic and political events. Regulators have struggled to classify the wagers: the Commodity Futures Trading Commission (CFTC) has treated several contracts as unlicensed event-based derivatives, while crypto advocates liken them to protected speech.
State ethics lawyers began reviewing the issue after press reports indicated that a handful of legislative aides attempted to trade on a contract predicting the timing of last year’s budget vote, two people familiar with the inquiry told SourceRated. No charges were filed, but the incident “set off alarms about a loophole in existing conflict-of-interest rules,” one senior finance official said.
The executive order also asks the Fair Political Practices Commission to publish compliance guidelines and a public disclosure template for any permissible activity. “This brings prediction markets in line with the state’s long-standing bans on using inside information in traditional securities or sports wagering,” said Dr. Elena Vásquez, a governance analyst at the University of Southern California.
Crypto industry groups argued the measure is premature. “There is no evidence of systemic abuse, and the state risks stifling an innovative forecasting tool,” the Blockchain Association of California said in a statement. Civil-liberties organizations, however, applauded the move, noting that prediction markets’ anonymity features make enforcement difficult without clear prohibitions.
Looking ahead, analysts expect other states to watch California’s rollout closely. If compliance rules prove workable, “we could see a patchwork of similar bans or, conversely, renewed federal discussions about a nationwide framework,” said Kathryn Li, senior counsel at market-structure firm WilmerHale. The CFTC is slated to hold a roundtable on retail event contracts in April, ensuring the debate over where free speech ends and insider trading begins is far from over.