Polymarket has terminated its paid relationship with George Santos following a Department of Justice investigation into whether the disgraced former congressman placed trades on his own attendance at February’s State of the Union address. The move marks the latest fallout in a sector increasingly scrutinised for market integrity violations.

The Santos situation

Santos publicly declared his intention to attend the annual address, posting on X the day before: “I’m going to be there for the State of Union in the gallery, guys.” Yet he later posted during the speech itself that flight troubles prevented his attendance. According to reporting from multiple outlets, Santos placed wagers on Kalshi predicting he would not attend, positioning himself to profit from his own absence.

When questioned directly about his account status, Santos offered only an evasive non-answer. Kalshi froze his account upon detecting the suspicious activity and referred the matter to federal authorities.

The timing proved particularly awkward for Polymarket. Santos had recently joined the platform as an influencer following his release from prison, after President Trump granted him clemency in 2025. His original conviction involved wire fraud and check fraud charges, carrying a sentence of 87 months.

Regulation tightens across the US

The Santos incident arrives amid broader regulatory momentum against prediction markets. Illinois this week became the second state to approve taxation on operators, joining Kentucky. Under SB 3019, Illinois projects approximately $65 million in annual revenue from taxes on prediction markets, fantasy sports, digital assets, and social media companies as part of Governor JB Pritzker’s fiscal 2027 budget.

The exact tax percentages remain undisclosed. That said, the American Gaming Association estimates US states have collectively forfeited at least $1 billion in tax revenue to the prediction market boom. More than two dozen states currently have pending legislation against the sector.

Industry advocates argue the levies amount to double taxation, since capital gains on prediction market trades already face standard taxation. Whether courts will view the additional state taxes as overreach remains uncertain. Potential litigation looms.

Kalshi hedging gains traction

Beyond regulatory scrutiny, prediction markets are carving out unexpected utility in small business risk management. The Jeffrey, an Upper East Side bar, leveraged Kalshi to hedge a costly promotional gamble on the New York Knicks’ NBA Finals Game 1 performance. Owner Andy Freedman wagered $5,000 at 37 per cent odds, securing a payout of approximately $12,940 when the Knicks prevailed. That offset his pledge to cover customer food and drink up to $100 per person.

Kalshi framed the arrangement as transforming a “risky promotion” into a “fully insured one.” Nicolas Hull from Kalshi positioned the application as the future of business risk management, arguing that prediction markets offer liquidity and transparency that traditional insurance cannot match for operational exposures.

It remains unclear whether The Jeffrey ultimately broke even. The bar has not publicly disclosed total qualifying customer expenses.

What the team thinks

Baz Hartley says:

While Polymarket’s swift action to distance itself from Santos is commendable damage control, the real issue here goes beyond one bad actor, it exposes the fundamental transparency gap that prediction markets have failed to address. Just as bonus terms prey on players who don’t read the fine print, these platforms have been operating without the kind of disclosure frameworks that would immediately flag conflicts of interest, and until they implement robust monitoring systems comparable to what traditional financial markets require, we’ll keep seeing these predictable scandals unfold. The sector needs to prove it can police itself before regulators do it for them, because right now, the integrity issues make even the worst casino T&Cs look straightforward by comparison.