Top election official asks state prosecutor to investigate prediction markets

Maryland’s top election official is asking the state prosecutor to investigate the legality of prediction market platforms.

The letter comes weeks after Elections Administrator Jared DeMarinis issued a strong warning about wagering on the outcome of elections in the state, which is illegal. The potential for a criminal investigation could make Maryland unique among states that have attempted to regulate the new industry.

DeMarinis, in a one-page letter to the Office of the State Prosecutor, said he believes the law is clear.

“Currently, prediction market platforms permit participants to wager money on the outcome of State and local elections, with financial returns dependent upon the results certified by election officials,” DeMarinis wrote in his letter dated July 23. “These activities raise substantial questions as to whether such contracts constitute prohibited wagering on election outcomes under Maryland law. From my plain reading of the statute and how the sites operate, I believe they do.”

And if the law is not clear, the prosecutor’s office should review state law and make recommendations on “any action you determine to be appropriate including seeking a clarification regarding the application of Election Law … to election prediction markets,” DeMarinis wrote.

The state prosecutor handles criminal investigations related to election and campaign finance law.

The letter obtained by Maryland Matters does not ask the prosecutor to go after individuals who wagered on Maryland elections. In June, DeMarinis held that out as another possibility and warned against the practice.

State Prosecutor Charlton T. Howard III, in an email Thursday, declined to comment on the letter citing his office’s policy “not to comment on the existence, status or details of any investigation, unless and until it results in criminal charges.”

Prediction markets like Kalshi and Polymarket allow users to predict the outcome of events — typically sporting events, but also political races — and trade on the outcome, profiting if they guess right, losing their investment if not.

The companies argue that users are not making bets but are engaging in market trading — a claim buttressed by the Commodity Futures Trading Commission, the federal agency that regulates the U.S. derivatives market and has vigorously opposed states’ efforts to rein in prediction markets.

A trade group that promotes the industry did not respond to a request for comment.

Violations of Maryland’s law against betting on elections are considered a misdemeanor punishable by a fine of $50  to $500. That fine is paid to the state. The total amount of wagers could also be seized by the state and potentially paid to counties where the violations occurred. It is not immediately clear how that would be determined.

During the primary, hundreds of thousands of dollars were spent on races in the Maryland primary election on sites like Kalshi and Polymarket.

“Maryland has a compelling interest in preserving the integrity and public trust of elections,” DeMarinis wrote. “Financial incentives should not influence or appear to influence election results. Artificial online markets should never determine electoral outcomes; only voters using their voice should determine electoral outcomes free of any undue influence, threats, intimidation or financial gain.

A number of states have attempted to regulate prediction markets, attempting to pass laws aimed at regulating and controlling the markets. Those laws and regulations have been met by lawsuits filed by the CFTC, which claims superseding jurisdiction over states when it comes to regulating the upstart industry. The commission says the platforms offer “swaps, not wagers.”

The rise of this new online activity comes with unsettled questions for state lawmakers around the country as they look to define further gambling activity and who regulates this market. There are also potential revenue implications: Maryland, like many states, has legalized multiple forms of gaming including online and brick-and-mortar sports books from which the state receives licensing fees and taxes.

Prediction markets so far has sidestepped those regulations, fees and taxes.

In Maryland, lawmakers who sit on committees overseeing gaming and election laws said they have their own questions.

“I don’t think people should be betting on elections,” said House Minority Leader Del. Jason C. Buckel (R-Allegany), who serves on a Ways and Means Committee subcommittee that handles gambling law.

Buckel said he was unfamiliar with the business model of prediction markets.

“As with most things ‘technology,’ the devil is in the details and it’s often not as ‘great’ as it seems,” Buckel said in a text message. “I’d favor more regulation of them, particularly in the sports arena (and ban elections).”

Del. Kris Fair (D-Frederick), chair of the Election Law Subcommittee of the House Government, Labor and Elections Committee, said a balance needs to be struck.

“We have seen numerous examples of questionable behaviors around prediction markets and thus are consistently evaluating if and when they are appropriate,” Fair said in a text. “Marylanders deserve the right to participate in prediction markets and we must ensure that is not at the cost of secure and transparent elections.”

Earlier this year, Gov. Wes Moore (D) issued an executive order barring state employees from placing bets on prediction markets using insider information.

When asked if trading on election outcomes on prediction markets is the same as betting and illegal in Maryland, Fair said: “I’m not sure if it is or it isn’t.”

“I will be curious to see what the state prosecutor says and go from there,” Fair said. “I have lots of questions but I think the state administrator is taking the correct first step to finding out.”

Bryan Sears reports for Maryland Matters.

Maryland Matters is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Maryland Matters maintains editorial independence. Contact Editor Steve Crane for questions: [email protected].