Kalshi settled a $3.32 million Spotify prediction market minutes after its enforcement chief responded to a trader's fraud warning, according to correspondence published Sunday by trader Caleb Davies. Davies had asked the exchange to delay settlement while suspected manipulation of streaming data was investigated. The June market asked which artists would reach No. 1 on Spotify's daily U.S. chart and recorded $3,320,917 in trading volume. Davies lost $4,500 on the settlement and is identified as "The Whistleblower" in a Netflix documentary on prediction markets. The dispute occurs as federal regulators tighten scrutiny of how event contracts resolve, with the CFTC issuing advisories in March and Friday requiring exchanges to assess data source reliability and manipulation resistance.
Davies Warned Kalshi of Abnormal Streaming Activity Before Settlement
Davies contacted Kalshi CEO Tarek Mansour after detecting abnormal US-only streaming increases in several songs as June approached its end. Mansour referred him to Robert DeNault, Kalshi's head of enforcement and legal counsel. Davies sent the company his analysis of the streaming activity and related trading positions, asking Kalshi to "hold off on paying out the market until an investigation has been completed." DeNault responded that the exchange was examining the information and would investigate suspicious trading on its platform, but said "the main point of contention is with Polymarket, not Kalshi." The underlying manipulation was first reported by the Financial Times, with Wired obtaining Spotify's confirmation that the streams were fraudulent.
Malcolm Todd's Earrings Rose 70% in Single Day to Reach No. 1
The market's final surprise involved Malcolm Todd's "Earrings," which rose approximately 70% in a day and reached No. 1 on Spotify's June 29 US chart. Davies calculated the Sunday-to-Monday jump as an 11.24 sigma event, or roughly a one-in-77-octillion chance of occurring randomly. Of approximately 200 songs charting on both days, 195 declined and four rose. Traders had priced "Earrings" at about 2.5% in the preceding week, meaning roughly a 20-fold return for anyone holding the outcome. Davies told DeNault that Polymarket had not offered an "Earrings" outcome at all and that Kalshi's private records could reveal who accumulated positions on Todd before the surge. DeNault replied six hours later that "only Spotify can verify" whether the data reflected genuine listening or manipulation, adding that others had identified "some plausible reasons" the numbers might be organic. Kalshi settled the market minutes after sending that response.
DeNault also wrote that Kalshi was not seeing evidence of traders suspiciously benefiting from the numbers. Davies counters that open interest in the "Earrings" bracket climbed from $2,000 to more than $70,000 in the days before the disputed streams, while comparable long-shot brackets saw no increase. He also notes the exchange applied no comparable urgency to undisputed results: an Olivia Rodrigo win went unpaid until he flagged it three days later, and a Michael Jackson win took over a week.
Spotify Removed 523,000 Streams Following Day After Settlement
The following day, Spotify removed 523,000 streams from the cumulative totals for "Earrings," enough to have placed the song fourth rather than first for June 29. Spotify does not revise its published daily charts retroactively, however, so the original chart Kalshi settled against remains unchanged. Spotify has not identified who generated the artificial streams or established that the activity was intended to manipulate a prediction market. There is no evidence implicating Todd or his team, making any claim that a Kalshi trader bought the streams unproven.
Spotify subsequently asked both Kalshi and Polymarket to remove its branding and state that neither company holds any partnership with the streaming service, per Bloomberg. Kalshi removed the logo and revised wording that had suggested Spotify verified its markets. Spokesperson Elisabeth Diana said the company was "in touch with Spotify" and actively investigating. Kalshi has not published an investigation result, reversed the settlement or announced reimbursements. Davies says no one at the exchange has contacted him since Spotify confirmed the fraud. Kalshi has stopped listing new Spotify markets, but its July contract for artists reaching No. 1 in the US remains open and actively traded, having attracted approximately $894,000 by Monday.
CFTC Issued Advisories on Event Contract Data Source Requirements
A CFTC advisory issued in March required exchanges to identify the specific data sources settlement depends on and to assess their reliability, objectivity and manipulation resistance, warning that cash-settled contracts can create incentives to influence the data determining payouts. A second advisory issued Friday narrowed the practice further, telling exchanges to stop self-certifying broad template contracts that bundle permutations with differing settlement sources under a single filing. Neither advisory mentions Kalshi, Spotify or "Earrings."
Kalshi has strengthened surveillance for its sports business through a Sportradar partnership, but entertainment markets may depend on third-party sources without equivalent information-sharing systems. A similar weakness surfaced when someone allegedly manipulated a Paris weather sensor used to settle Polymarket contracts.
FAQ
What did Kalshi do after receiving the fraud warning from Davies?
Kalshi settled the $3.32 million Spotify prediction market minutes after its head of enforcement and legal counsel, Robert DeNault, responded to Davies. DeNault stated that "only Spotify can verify" whether the data reflected genuine listening or manipulation and that others had identified "some plausible reasons" the numbers might be organic.
How much did open interest increase in the Malcolm Todd 'Earrings' bracket before the disputed streams?
Open interest in the "Earrings" bracket climbed from $2,000 to more than $70,000 in the days before the disputed streams, while comparable long-shot brackets saw no increase, according to Davies's analysis.
What action did Spotify take after the settlement?
The following day after settlement, Spotify removed 523,000 streams from the cumulative totals for "Earrings," enough to have placed the song fourth rather than first for June 29. Spotify also asked both Kalshi and Polymarket to remove its branding and state that neither company holds any partnership with the streaming service.
