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Enforcement Round-Up
New CFTC Director of Enforcement?
According to early press reports, and confirmed by a recent announcement on March 2,CFTC Chairman Michael Selig has selected David I. Miller to join the agency as its next Director of Enforcement. Miller is a partner at Greenberg Traurig LLP. Prior to his most recent time in private practice, he served as a federal prosecutor with the U.S. Department of Justice, including roles in the Southern District of New York, the Eastern District of Virginia, and Main Justice. As described in his firm biography, while at SDNY, Miller handled multiple insider trading matters and “worked closely with, and coordinated parallel civil enforcement proceedings with, the SEC, CFTC, FINRA, and other regulatory agencies.”
CFTC Further Emphasizes Its Exclusive Jurisdiction Over Prediction Markets and Congressional Call to Action
In last month’s The Desk, we covered Chair Selig’s January 29, 2026, public statement, which included remarks about prediction markets. Among other statements on this topic, Chair Selig noted that he has directed “the CFTC staff to reassess the Commission’s participation in matters currently pending before the federal district and circuit courts.” On February 17, 2026, the CFTC filed an amicus brief in North American Derivatives Exchange, Inc. et al v. The State of Nevada on relation of the Nevada Gaming Control Board et al., currently before the U.S. Court of Appeals for the Ninth Circuit (No. 25-7187). The appeal concerns the scope of federal preemption under the Commodity Exchange Act (“CEA”) as applied to exchange-listed event contracts tied to sporting outcomes.
The underlying dispute began in June 2025, when Crypto.com—d/b/a North American Derivatives Exchange, Inc. a CFTC designated contract market (“DCM”)—filed suit against the Nevada Gaming Control Board (the “Board”) to enjoin the Board from enforcing Nevada’s gaming laws against its exchange.
On October 14, 2025, the district court denied the plaintiffs’ motions for a preliminary injunction and for judgment on the pleadings. The court held that the event contracts at issue were not shown to qualify as “swaps” subject to the CFTC’s exclusive jurisdiction under the CEA and therefore declined to find Nevada’s gaming laws were preempted at the preliminary stage. Notably, the same district court judge previously granted a preliminary injunction to KalshiEx, another event-contracts exchange, on field-preemption grounds—underscoring the unsettled federal-state jurisdictional delineation in this area.
In its amicus brief, the CFTC provides a detailed historical overview of its statutory mandate under the CEA and emphasizes Congress’s grant of exclusive jurisdiction over commodity derivatives markets to the CFTC. The Commission argues that Nevada’s attempt to regulate event contracts on DCM is preempted under both field and conflict preemption principles.
Chair Selig personally led the announcement of the amicus brief, reinforcing his stated commitment to defending the CFTC’s exclusive jurisdiction over prediction markets and drafting event contracts rules in departure from the Commission’s previous regulation by enforcement approach in this area. On the same day the brief was filed, Chair Selig published an op-ed in the Wall Street Journal and appeared on Fox Business News, discussing the Commission’s planned regulatory approach to prediction markets under his leadership. To quote Chair Selig: “The CFTC will no longer sit idly by while overzealous state governments
undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products.”
On February 23, 2026, a group of six U.S. Senators sent Chair Selig a letter expressing their concerns with prediction markets, particularly those that “incentivize physical injury or death”, citing the prohibition in 17 CFR 40.11 against the listing of contracts involving or referencing “terrorism, assassination, war, or similar activity contrary to the public interest.” In emphasizing the group’s expectation that “the CFTC [] be proactive in providing clear rules of the road and regulating this space”, the letter identifies certain event contracts listed on Polymarket, including, e.g., “Maduro out by…” as potentially prohibited under the CEA. The letter further requests that Chair Selig respond to the group’s specific questions focused on how the CFTC defines and interprets event contracts that potentially
concern war, terrorism, or assassination by March 9, 2026.
On February 25, 2026, the CFTC Division of Enforcement issued a Prediction Markets Advisory cautioning market participants that the CFTC “has full authority to police illegal trading practices occurring on any DCM”, including, for example: misappropriation of confidential information (i.e., insider trading), pre-arranged, noncompetitive trading and wash sales, and fraud and manipulation. The Advisory cites KalshiEx’s public announcement of two enforcement matters against individuals trading on Kalshi, one involving allegations of fraud/manipulation and the other involving allegations of insider trading, which Kalshi handled internally through its enforcement process.
Heraeus Precious Metals Fraud Investigation Update
As reported in last month’s newsletter, German prosecutors are investigating potential fraud totaling approximately €460 million at Heraeus Precious Metals (HPM) following concerns raised by a whistleblower and the Company’s internal investigation.
In 2023, Heraeus switched auditors from EY to KPMG. After questioning the thoroughness of the Company’s prior internal investigation of the whistleblower allegations, KPMG’s inquiries led Heraeus to engage the law firm CMS to conduct an independent review. According to a subsequent news report, this was not the first time the Company had retained outside counsel to examine whistleblower allegations concerning its handling of scrap precious metals.
In 2015, Heraeus engaged Clifford Chance to conduct a similar investigation. A draft report from that review—never finalized—reportedly concluded that the allegations posed “considerable” legal risk to the Company, while also stating that Heraeus was not legally required to disclose the alleged retention of materials to customers. Recent reporting further states that CMS found that Heraeus had instructed Clifford Chance to remove detailed descriptions of the alleged conduct from the draft report. In Germany, privilege protections for attorney-led investigations are generally more limited than in the United States.
Heraeus is privately held and has no U.S. listing. We are not currently aware of any indication that the alleged fraud affected U.S. markets or U.S. persons. However, in 2019, Heraeus’s U.S. subsidiary, Heraeus Metals New York LLC, and one of its traders settled spoofing charges with the CFTC relating to silver and gold futures traded on the Commodity Exchange, Inc. (COMEX).
We will continue to monitor this matter and provide updates as significant developments arise.
Tiffany Payne | Email
CFTC Legacy Swap Status Interpretive Letter
As part of an internal reorganization, Morgan Stanley requested the CFTC’s Market Participants Division (“MPD”) provide “clarity for all market participants” on the whether or not a swap’s status as a Legacy Swap is affected by a merger by operation of law – as opposed to a merger by novation or transfer.
In response, MPD issued CFTC Staff Letter No. 26-03. The proposed merger/internal reorganization involved the merger of certain of Morgan Stanley Capital Services, LLC (“MSCS”) trading businesses into Morgan Stanley Bank N.A. (“MSBNA”) with the intent to bring together the fixed income derivatives and foreign exchange swaps of MSCS into MSBNA. MSCS’ Legacy Portfolio will merge into a swaps portfolio of MSBNA as an operation of state corporation laws.
According to the letter, the portfolio of swaps were comprised of approximately 1% of Legacy Swaps – swaps entered into before July 21, 2010 for the clearing requirement (17 CFR 50.5) and swaps entered into before September 1, 2016 for the margin requirements (17 CFR 23.161). Legacy Swaps can lose their status as Legacy Swaps if they are assigned, novated, exchanged, transferred or conveyed to a new party, or they may lose their status as Legacy Swaps if combined with a portfolio of swaps that are subject to margin requirements.
Morgan Stanley’s request for relief notes that transfer of the Legacy Swaps into the new portfolio will have no economic effect. As a result, MPD stated that swaps can maintain their Legacy Status and the mandatory clearing requirement and CFTC margin rules are not triggered when Legacy Swaps move to a different legal entity so long as there is:
- Merger by operation of law;
- No change to economic terms;
- Legitimate business purpose in the reorganization; and
- Ownership and original counterparties remain the same
This letter joins a helpful and growing library of guidance about when Legacy Swaps can maintain their status – including related to the UBS/Credit Suisse business transfer, LIBOR transition, and Brexit-related portfolio transfers.
Barrett Morris | Email
I Won an Event Contract, But Lost Money
Following the capture of Venezuela’s then-President Maduro, I read about three wallets that placed suspicious “wagers” on event contracts predicting Maduro being ousted from office. Reports noted that the “precision of the trades” suggested the individuals purchasing the contracts likely had some level of confidential information.
Less than two weeks later, one of those three wallets placed a new wager predicting that Israel would strike Iran by either January 31, 2026, March 31, 2026, or June 24, 2026. Armed with this information, I downloaded Kalshi, created an account, and spent $50 at a 30% odds on the “Ali Khamenei out as Supreme Leader?” before April 1, 2026 contract. My max payout was $158. I found this contract particularly interesting because under CFTC rule 17 CFR 40.11 an “agreement, contract, transaction, or swap…that involves, relates to, or references terrorism, assassination, [or] war…” is prohibited. Did the Kalshi contract presume
Iran’s Supreme Leader Khamenei would step down peacefully?
This past Saturday I woke up surprised like many to learn that the U.S. and Israel had commenced military strikes in Iran and that Khamenei was killed as a result. Did this mean he was out? Surely if he’s dead he’s out, right?
When I went to check on my winnings, the contract noted it was under review. When I was paid out, it was much less than my max payout and less than even my initial buy-in - $45.82. Saturday evening, Tarek Mansour, Kalshi’s CEO shared on X that “we don’t list markets directly tied to death.” And he noted (1) “it’s always possible for a ruler to step down or transition power without death, even in autocracies. It just happened in Venezuela”; and (2) “we make the caveat clear in the rules and in the market page, but today is a good learning that we can do more…” Shortly after being paid my “winnings”, I did receive a reimbursement for any fees tied to the contract.
On Polymarket, which has been approved to operate in the U.S., but isn’t fully available to the public, reports state that over $500,000,000 in contracts related to the timing of the current conflict in Iran – traded, including contracts that state “US strikes Iran by” a certain date, which could only mean war right? The same reports state that again, alleged insiders profited millions from well-timed wagers.
I do not doubt, and fully understand, that prediction markets can be a valuable source of information and in certain instances a way to hedge against outcomes. The biggest issue facing these markets right now (according to me) is insider trading based on misappropriation of confidential information. We can look to the so-called “Eddie Murphy Rule” in CFTC rule 180.1 which was modeled on Rule 10b-5 of the Securities Exchange Act of 1934. To ensure that the popularity of these markets does not trade places with the integrity of these markets and that they operate in a manner to serve their intended broader purposes, the CFTC and each
marketplace should be identifying and pursuing individuals that execute event contracts based on inside information or the ability to directly control contract outcomes. The CFTC recently issued an advisory on the misuse of non-public information and fraud with respect to prediction markets. The other way to improve these markets is what Kalshi’s CEO hit on in his tweet – enhance the disclosures provided to users of the marketplace. Users should be aware of any limits to the contracts they are purchasing, including regulatory requirements that could impact their contract and how the marketplace treats contracts that may unintentionally become prohibited under the CFTC’s regulations.
Barrett Morris | Email
Interesting Links
Places We Will Be
- ISDA AGM, April 28 – 30
- International Financial Law Conference, May 6 – 8
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