Spotify (NYSE:SPOT) reportedly deleted more than 500,000 fake streams of Malcolm Todd’s “Earrings” after the song shot to the top of the U.S. chart overnight. The suspected motive: a $3 million Kalshi market on June’s most-streamed song.

Traders had reportedly priced Todd’s chances below 3% before the surge began, meaning a winning bet paid roughly 30 times its stake. There is no indication Todd or his label were involved.

Why Fake Streams May Be A Federal Crime

Ashley Ebersole, co-founder and chief legal officer of tokenization firm tx and a former senior counsel at the SEC, told Benzinga in an exclusive interview that the episode may go well beyond streaming fraud.

Fabricating streams that feed a regulated event contract likely violates the Commodity Exchange Act’s ban on delivering false reports that affect commodity prices, according to Ebersole.

Legal To Move A Price, Illegal To Fake The Data

Trading with the intent to move a price is not illegal on its own, Ebersole noted.

In the 2013 case of CFTC v. Wilson, a federal court rejected a manipulation claim against trading firm DRW even though its bids influenced a settlement price, because those bids were real, executable and reflected a genuine economic view. As the court put it, it is “not illegal to be smarter than your counterparties.”

The Spotify bots sit on the other side of that line: fake activity injected into the data that settles a regulated contract.

The harder case, Ebersole said, is paying real people to stream on real accounts. “You’re not fabricating data. You’re generating real activity,” even when a third party is coordinating it, he said. He called it “a gray area.”

Kalshi Not In The Crosshairs

“The prediction market platforms wouldn’t have exposure here because they did nothing wrong; they were the venue on which a third party may have done something wrong,” Ebersole said.

A March CFTC advisory warned that cash-settled event contracts “may create an incentive to manipulate or artificially influence the data.”

Everyone Is Testing The Line

Prediction markets are exploding. The World Cup drove Kalshi and Polymarket to a combined $44.8 billion in June volume, helped Kalshi add three million users, and lifted Rothera, a new prediction market, to a reported $2 billion debut month.

Traders are probing what is and isn’t allowed. President Trump’s own teleprompter operator allegedly made $90,000 betting on the president’s speeches, reportedly selling out of positions live when Trump went off script. Another flew across the country with a stopwatch and a bird-sound recorder to time the Super Bowl anthem rehearsal from outside the stadium.

“Market conduct based on knowledge and analysis is permissible,” Ebersole said, “but conduct motivated by intent to create artificial market conditions or take advantage of illicit information is not.”

His first rule for the new world would be an explicit data integrity standard for whatever metric a contract references, “streams, search rankings, sales figures,” established now, he said, “before it becomes a bigger problem.”

Kalshi and Benzinga have an existing data collaboration agreement.

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