The Commodity Futures Trading Commission has privately warned Kalshi, the prediction market operator valued at $40 billion, that charges could land imminently, according to a person with direct knowledge of the probe who was granted anonymity to discuss unannounced enforcement activity.

The case centers on process, not fraud. The CFTC is investigating whether Kalshi failed to properly notify the agency about dozens of new products in development before launch, the person said. POLITICO first reported the warning.

Kalshi spokesperson Elisabeth Diana said in a statement that the CFTC's warning "is about a procedural error involving the submission of a handful of contracts, many of which weren't live." She added: "We are already addressing the issue."

A CFTC spokesperson did not immediately respond to a request for comment.

What is self-certification?

At the heart of the probe sits the so-called self-certification process, the mechanism CFTC-regulated exchanges use to bring products to market quickly. It covers products ranging from complex derivatives contracts tied to oil prices to a prediction market on Defense Secretary Pete Hegseth's possible impeachment.

The rules allow exchanges to begin offering trading in new products as soon as the next day, provided they attest to the CFTC that the products meet certain requirements. Those requirements include a showing that the products are not at risk of easy manipulation. The CFTC's express approval is not required.

The investigation has been in the works for months, the person with knowledge of the probe said.

Why does this matter now?

Prediction markets have been on a blistering rise since President Donald Trump's election two years ago. Kalshi and Polymarket, the industry's two leading platforms, now hold valuations of $40 billion and $21 billion, respectively. Much of that growth — in size, in new products and in expansions into U.S. politics and sports — has come thanks to the CFTC's friendlier approach to the markets under Michael Selig's leadership.

The Kalshi probe signals shifting winds in Washington. Democrats, fresh off their midterm sweep, are already gearing up to aggressively oversee the industry in the next Congress.

Kalshi is not the only platform under new pressure. Polymarket is also the subject of a sweeping CFTC investigation, as POLITICO and other outlets have previously reported. That probe examines, among other things, whether Polymarket violated the terms of a 2022 settlement deal requiring it to close off its platform to U.S. users.

Who else has criticized the system?

The self-certification process has drawn criticism from Wall Street incumbents. CME Group CEO Terry Duffy earlier this year sounded the alarm about a rising tide of prediction market wagers that, in his view, were at risk of manipulation and should never have been allowed to go live.

The CFTC itself has tightened its posture. In July, the agency formally warned prediction market operators against using overly broad language when certifying new products.

The scrutiny marks a turn for Selig's CFTC, which has aggressively embraced the prediction markets — particularly in the legal fight against a group of state officials who allege the companies are violating existing gambling laws.

For Kalshi, the immediate stakes are procedural rather than existential. For an industry that has grown to a combined $61 billion in platform valuations on the strength of regulatory goodwill, the message from Washington is that the goodwill now carries conditions.