Kalshi's Brian Quintenz Talks George Santos Lifetime Ban

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Tim Stenovec** (0:07)
It is day that ends in Y, so there's a lot going on with prediction markets. The latest is that ex-Congressman George Santos won't be able to place another wager on Kalshi after the platform banned him for life for allegedly manipulating wagers on his attendance at this year's State of the Union Address.
Brian Quintenz joins us now. He's a former CFTC Commissioner. He's former head of policy for A16Z Crypto, that's the VC firm Andreessen Horowitz. He's now advising finance and tech companies. He's a board member at Kalshi Exchange. So this is the CFTC regulated derivatives market. It's a position he's held since 2021 He joins us here in the Bloomberg Business Week Studio. Brian, welcome.

**Brian Quintenz** (0:44)
Thank you. Thanks for having me.

**Tim Stenovec** (0:46)
So this is the first such ban by Kalshi. The company announced the action on Monday, along with a fine of over $71,000.
What does it take to get banned by the platform?

**Brian Quintenz** (0:57)
Well, I think in this case, what we saw was a deliberate lack of cooperation. I mean, it's one thing to violate the rules, and you always want to see an exchange enforce those rules. We can't live in a minority report society where we just expect nothing bad to ever happen. Something bad will happen, but it's important that the exchange prosecutes that, surveils it, finds it, discovers it, refers it to the CFTC. But in this case, what we saw was a complete lack of cooperation after being caught. And if you're not going to respect the enforcement process after you've been caught doing something bad, why should we think that you're going to respect the market integrity if you're allowed to trade again?
So in this case, I think a lifetime ban was very appropriate. And the more examples we see of these kinds of things happening, hopefully the more of a prophylactic impact it has to prevent it from happening again in the future.

**Kristine Aquino** (1:50)
Yeah, I mean, how effective do you think it's going to be as a precedent? Is it a strong enough signal to, as you say, other potential elements or people who might attempt something like this?
Do you think that will give them pause now that this is the first such example of a lifetime ban?

**Brian Quintenz** (2:07)
Yeah, I think as a former regulator and now being a part of the Kalshi Exchange Board, you never want to see bad things happen. You never want to see people violate the rules or unethical people try to compromise market integrity. But the reality is that it happens. And so, the flip side to having these things reported on and possibly indicating some kind of negative issue with the market is that there are being caught and they do provide that story that if you do something bad, we're gonna come after you.

**Tim Stenovec** (2:41)
From a civil perspective, not from a criminal perspective.

**Brian Quintenz** (2:45)
Well, yeah, Kalshi can enforce the rules on its own exchange. The CFTC as the regulator can enforce civil penalties, but it would be up to the DOJ to prosecute criminally.

**Tim Stenovec** (2:54)
Do you think we start to see that?

**Brian Quintenz** (2:57)
It's possible. I mean, I think when I was at the CFTC, it always depended upon the impact of the behavior.

**Tim Stenovec** (3:05)
Meaning the number of people who are affected, the amount of money, that sort of thing?

**Brian Quintenz** (3:09)
Exactly. And obviously, fraud is a lot easier to prosecute than manipulation, but certainly manipulation cases were brought by DOJ.
So I think it's based on an order of magnitude of the impact.

**Tim Stenovec** (3:23)
Kalshi, you would refer something to the CFTC. The CFTC would then decide whether or not to refer it to DOJ?

**Brian Quintenz** (3:28)
That's correct. Okay.

**Tim Stenovec** (3:30)
I want to talk a little bit about some other news that we got late last week, and this is the Ninth Circuit opinion that we got on Friday. Kalshi took a hit when the US. Court of Appeals for the Ninth Circuit said that sports bets are not swaps. Here's what Judge Ryan D. Nelson said, For Kalshi to deny its sports event contracts or sports bets under a reasonable person's understanding is disingenuous. That sports events contracts are in reality sports bets is not just an, I know it when I see it, rather everyone, including Kalshi, knows it when they see it. How do you respond to that?

**Brian Quintenz** (4:06)
Well, unfortunately, in my view, I mean, I think the Ninth Circuit opinion provided more confusion than clarity. If you really look at the issue and you look at what the casino industry and the states that have allied with them in prosecuting these cases have charged or claimed, it's that states can control or dictate what kinds of contracts are listed on federally regulated exchanges and US law does not preempt that. Number two, as that opinion described, these events aren't actually events and therefore they don't qualify as swaps.