Bloomberg Audio Studios, podcasts, radio news. A federal government agency is reportedly investigating possible insider trading involving big swings in oil markets ahead of a major policy announcement by President Trump.
The Body of Futures Trading Commission has examined at least two instances where trading volumes surged right before those announcements were made. Joining us now is Gary against Through, the former chairman of the CFTC. He also served as the chairman of the SEC and has a new podcast called Power and Consequences. It's you and the Nobel Laureate Simon Johnson dealing with a lot of these issues prediction markets as we want to talk the most about. But let
me ask you quickly about this story. You helm the agency after the global financial crisis, there were a lot of raised eyebrows afterward of this trade came out. What is your read on what's happening here and maybe take us behind the scenes of what the CFDC might be doing as it looks into this one.
The only way that the American public can have confidence in markets is they think that insiders can't get ahead of them with material information.
I mean, that's just not fair, right.
But two, the only way we can have confidence in our government is that we don't think that somebody in government or their friends or family are trading ahead of us.
Right.
So those two things are really important. And we knew that sixteen years ago, after the financial crisis, we were putting reforms in place, and I was honored to head this thing called the CFTC, and we were going to Congress.
And I have to tell you a little story about Eddie Murphy.
Okay, the comedian.
The comedian, yeah, an actor, and he had done this movie Trading Place.
So the legendary movie in my household. I never understood the end of it until like a year ago. But yes, this is an amazing.
And it's an amazing movie where Eddie Murphy is trading these things called futures.
It's a contract where it's.
Right concentrated orange juice.
There you go, there you go. But do you remember, Christina, what he was trading it on. He was trading it on and a report from the Department of Agriculture about the orange crop.
He basically had inside information.
Yes, yeah, So I get to the Commodity Futures Trading Commission. I asked the staff. I said, well that's illegal, right, and they go, well, Boss. There was a lot of mumble mumble and wonderful people. So we went to Congress in the midst of all that, and we said we've got to get something. And I used to say it was the Eddie Murphy provision. It's got to be illegal. Well guess what we were successful. Al Frankin, who was in that movie, was a senator, had a great yuch,
great yucks on a couch in his office. But it's here's where it is today. It is illegal for a government actor, somebody who works in the government to pass on information to somebody and to have that person knowingly or with reckless disregard of the knowledge, trade on that information. Also it's illegal for that government actors doing so. It's both the government act or somebody passing on.
So it's illegal.
But how do you prosecute it because it can't be easy because it's not like these trades all have the person's name on them. They go through intermediaries, they go through trading dust talk to us about how the investigation works. You have to figure out who did it, when they did it, what information they have, and if it was public information or not, it's hard.
It's hard.
And I was honored to run federal law enforcement agencies twice, one in the commodity space, one in the security space. And so the staff is doing this, not the political pointees, but this staff is doing it with a lot of technology now using our artificial intelligence as well, tracking and looking for patterns, just like you do it Bloomberg, looking
for patterns. Is there a spike in trading for three minutes before something happens like we saw late in March I think it was March twenty third, like you've all reported, we saw again on April seventh, Like various members of the House and Senate on both sides of the have written Senator Warren, but others also Center White House and others have written, And so I would think, yes, the
government's going to investigate these things. But to your point, Christina, it's horrid because it's about pattern recognition and then getting behind that and saying, well, who actually traded And even if you identified David, I'm not saying you did this, but if David, somebody in your production booth, your control room, and the one second delay that we have here traded on whatever information, even in that one second, they might
be trading on material non public information. I'm not saying they all.
Know, of course, not right, We'll follow up after it.
If they don't show up for their shift, we'll know something's happened. But so far our team is all still here.
Is that right? Right?
But then what happens if all those government actors show up for their shifts they're in a situation room or maybe they're handling President Trump's tweet? Yeah, or are they call it x now our Truth Social? Yes?
Right, So that's important.
Look, I think also Congress is looking at whether to ban certain contracts prediction markets.
Think about it.
Well, let me use that as a segue. We had Alyssa Slopkin on the show talking about a band that she's suggesting to be put in place for government official they shouldn't be able to make bets staffirs, And in that interview it was kind of clear that there was some ambiguity surrounding who's regulating these spaces. So as we talk about prediction markets and you want a recent podcast episode point out people embedding on things for centuries, I'm betting on the pope.
Who's that going to be? Back in you know, fifteenth century, whatever.
Is it well regulated? When we look at Calshi, which is domicile here in the United States, polymarkets is not its overseas and subject to less regulation. Is there an adequate regulator apparatus surrounding all of this right now?
I think that collectively people will probably agree no, no, right now, no.
One.
You're right Americans. Humans have been betting on things since antiquity, but how it's regulated, and at least in sports betting, we've done that.
At the state level.
And I worked on that reform back in twenty ten. I don't remember a single member of Congress, a single Senator, House member, saying, oh, we're going to give you your little agency, Gensler, We're going to give you authority to regulate all this gaming.
And this also isn't a really pro regulatory environment right now. That's just not where the wins of federal government seemed to be.
No.
No, But I can tell you this, the majority leader at the time, Senator Harry Reid, would have never voted for something to basically preempt Nevada gaming.
No.
So it's rather absurd to think that's what Congress meant to do. Now, the courts that will play out. That's about sports betting. But now you have these geopolitical events. And we did work with Congress at the time to have a prohibition put in place on any contracts on assassination, war, terrorism, gaming, and otherwise unlawful acts. And that was something that they gave to the CFGC that we could prohibit. I thought
we voted on that. I remember voting on that. It was a rule forty one to one, I think, and so I thought we voted on that.
Settled.
Well, sometimes in life, things that you think are settled aren't settled.
Spoken as a true lawyer, no, I'm not a lawyer.
I'm a market's guide, but I would say this, I think the prediction markets some things we might just say as a society, we're going to ban. And you talked about the pope in fifteen ninety one, Gregory the fourteen said no, no betting on papal conclaves.
They off the table. That's just off the table.
But guess what in that reform effort in twenty ten, Congress said we can't bet on movie that's right, that's right on box office receipts. Howard Ludnik was running Canter Fitzgerald at the time. He's now the Secretary of COMMRESCE. He came in to us and said, we want to start a contract on movie futures. What do you think, CFTC And we looked at it and we voted. It was a split vote, three to two. We lost one Republican one Democrat actually, but we voted, and we said,
there's an economic purpose here. You're hedging some risk the movie industry. Hollywood reacted negatively and they had a vehicle this reform thing going through. Senator Patrick Leahey from Vermont took that side, got an amendment in that is illegal. You cannot bet on movie futures in this country. Nor can you bet on onions. And that was Gerald Ford in the nineteen fifty.
Okay, so we can't bet on movie futures, but we cant. I covered DC for seventeen years. But you can now bet on going to war. You can bet on all these really huge.
Outcome, but not on assassination, war or terrorism. I thought I voted on that sixteen years ago.
But I mean, talk to us about the larger picture of this, because we're in an era of so much data and commoditization and you were finding everything down to the numbers. I do worry, and I'm not a very touchy feely person, but I do worry about what it does to us when you are marketizing things like acts of war and people dying in conflicts and these huge geopolitical events.
Which could have economic consequences.
I should end of course, of course, absolutely absolutely.
And there's day trading, and people who watch this show know that people can trade on options that are expiring the same day, and we we try to allow the retail public and the big institutions to aid and meet in those markets, or even to buy and sell and speculate on the price of oil if it's well regulated, and we guard against insider trading and the like. But then there's some things that you would say, really, do they have economic consequences?
Do we want to have that?
Why we banned onions in the nineteen fifties and why we ban movie futures in the twenty ten. But assassination wore terrorism death contracts, like even in eighteenth century England, and this was a real problem at Lloyd's of London's, which was out of a coffee shop. King George the Second in the seventeen forties had to deal with his noble lords, say, hey, we're losing too many times to the pirates. Can we ban betting on ships going down?
They use different words admiralty insurance. You have to have an insurable interest in the ship. So maybe you have to have an insurable interest to have terrorismage.
We have got a minute left here. Where do you see this? How do you see this developing here? Over the next year, ground swell of public interest and leads to.
What it's a challenge.
I think that this administration will try to do their best to push out insider trading, and that's because they have an interest in promoting this to the courts will play out. I don't think it was Congress's intent to preempt state gaming laws, but this administration wants to take that on and have a little agency of five hundred people be a national gaming regulator. I think, I don't know,
and then I think Congress. I hope Congress takes up some prohibitions on certain death in assassination contracts.