Covering the wild world of prediction markets

0:00This week, the popular prediction market, known as Kalshi, did something it had never done before, it banned a trader permanently for insider trading. Specifically, Kalshi banned former congressman George Santos for life, and find him more than $70,000 after he engaged in insider trading on the site. That came as no shock to NPR tech correspondent Bobby Allen. Earlier this year, Bobby broke the story that Santos was under investigation by the Justice Department, for manipulating the market about whether he would or would not attend this year's state of the union address. He took to social media and posted videos about how excited he was to be attending the state of the union. Now, at the same time, investigators found Santos was placing bets on Kalshi that he would not be there. And when he never showed up, he made nearly $18,000 in profits. That Santos story is one of many Bobby has filed recently on prediction market platforms like Kalshi and Polly Market, where anyone can trade bets on the outcome of just about anything that is happening in the real world.

1:01So for this week's reporter's notebook, I wanted to talk to Bobby about how he broke the story and the fallout from it. I began by asking him how he got the scoop. In sort of becoming the person who's really been trying to worm into these companies, I often talked to current and former employees of Kalshi. And in one of those conversations, someone said, you know, there's a certain person who is being investigated and Kalshi doesn't really want to talk about it. And I said, well, who is it? And this person said, well, let's just say they were formerly intellectual and let's just say they wanted to attend an event that Trump was speaking. And I go, okay, say more and they go, that's all I'm saying. So they gave me sort of some bread crumbs and I was digging, digging, digging, digging. And I found all of the markets on Kalshi that were attendance markets. So will this person attend? Will they not? And I was going through, going through, going through and I said, wait a minute, there is a state of the union market. I go on to Discord. I put in state of the union market and I see lots of chatter among the traders who lost a lot of money and were quite upset that George Santos was portraying himself

2:05as going to the state of the union. And then last minute, it was revealed that he did not show up. So I called my source back and I go, two words, George Santos. And this person goes, bingo. So I go to the regulators in Washington, Justice Department officials and CFTC officials. They both say, in recent weeks, they've opened an investigation into this. We put it out into the world and then George Santos, of course, starts spinning off the rails on the internet and really starts coming at me. Yeah, after that story ran, you had a pretty unusual conversation on the phone with George Santos. What was that like? Yeah, I was sort of bracing myself for conversations with him because if we know anything about George Santos, we know that he is a master manipulator. He spent his whole life lying. He's a serial fabulous. All of these things are very well documented. And I knew he would try to play me. So after my story comes out, my phone rings and I look at it and it's a blocked number. And I pick it up and he goes, Bobby, George Santos. And I said, oh, hi, what's going on?

3:07And he launches into a tie rate against me. And it ends with, if you don't stop digging into me, that you're going to, you know, you're going to have a gun in your face and he hung up the phone. And I was just like, did I just hear what I thought I heard? And I texted him and I emailed him and he instantly denied it, instantly said I was making it up. And I was taking notes the whole time. And I know exactly what he said. And Joel, that just put me in a really strange situation as a journalist because on one hand, whoa, there's this former congressman who's making violent threats against me. That feels like a new story that feels notable. On the other hand, this is a guy who wants to be in the headlines. This is a guy who wants more oxygen online is writing about this, giving him exactly what he wants. And this was a real dilemma I was facing. And I called, you know, colleagues at NPR, other people who I trust and was seeking counsel and like, what should I do with this, right? Yeah, what, so tell me about those conversations. Yeah, I mean, I was just talking to, you know, pretty senior, more seasoned journalists who've been doing this much longer than I have.

4:11And most of the advice I got was, look, this guy is a, is a former US congressman making violent threats against a journalist for doing their job is not something that we should apologize for, or that we should cover up. And if he's done this once, he's probably done it again. You should probably put some sunlight on this. You should probably make this public. And I did, and wrote a little essay about the experience and how strange it was. And of course, because the internet works the way the internet does, that story was much more well read than the underlying story about the investigation into his CalShi traits. But to this day, sometimes George Santos will will send me a message or he'll, you know, say something disparaging about me on X. So he's still kicking around and thinking of me and, you know, saying strange things about me. But I'm not planning to do a story about him any any time soon. I mean, I think we should say at some point, too, that he was pleaded guilty to federal wire fraud and identity theft charges, right? And went to prison. Exactly right. Yeah, exactly right. And it's only because of Trump's

5:16commutation that he was able to win his freedom and leave federal prison. I want to ask about how these these prediction markets interact with politics. And I'm thinking, you know, with the midterms coming up pretty quick here, you know, what are you watching in terms of where these markets collide with elections and with politics? Yeah, this is going to be the first major election where these prediction markets are as mainstream as they are now. And election integrity experts and others who are sort of watching the midterms closely are very fearful about the ways in which these markets can be create an incentive to just so all sorts of chaos leading up to and during election day. An example would be these markets are very sensitive to, you know, Waco's viral and social media and news stories. And, you know, there's a fear that someone will sort of push a piece of misinformation. There'll be some coordinating campaign, whether it's from a foreign actor overseas or a partisan

6:16actor or just a chaos agent to try to move a market up or down. And because these markets are so sensitive to what's happening on social media and the news, potentially you can sort of you can sort of push something online, change the odds and cash out and make money. The other thing, and it's maybe a much more pernicious and sort of chilling hypothetical is the question of whether poll workers or any election workers will be on prediction markets or any of their family members or associates or whoever and, you know, will intentionally undercount a vote. So it looks like a candidate isn't as you know successful as they are or they will slow count or undercount or just do something else that will have a direct sort of connection to how these odds are moving. And then there's the the final thing that, you know, many folks are really worried about, which is, you know, the campaigns themselves, you know, getting some early returns, having their own internal polling data and then

7:18using that to try to to try to cash in. And we've already seen that Joel in a number of situations in which candidates have placed money on themselves and have been caught doing it and have been suspended from these platforms. And, you know, the thing is for the longest time, election betting at this scale has not been allowed in the US. It's been illegal. And that is because the CFTC historically has said these are susceptible to manipulation and it undermines the public interest. I mean, if someone goes to the polls, you would think they're going to be placing a ballot based on their political preferences and their policy choices. They're not placing a ballot because they are hoping to make a profit. If the profit motive is the thing that is mobilizing you, there's really something wrong with democracy. And that's been the position of regulators up until this second Trump administration. And PR tech correspondent Bobby Allen. Bobby, thank you very much for your time. Thanks for thanks for talking to us. Of course.