We are talking about games. It's different. What prop trading firms are doing is closer to the B Book and is illegal in the eyes of the SEC.
Earn2Trade and OneUpTrader are legitimate. Apex and TopStep have too many convoluted rules that are easy to miss. Apex has ridiculously high activation fees.
Prop firms know the statistics. If 95% of traders lose money, add the trailing DD and it's more like 99.5%. Your better off just depositing $2000 and trade micros rather then losing more from fees & resets. At least, if you bust you won't feel like you got bilked.
They play the odds just like the casino and insurance companies. There is no law against it. But most prop firms would probably put you on a live account if you're that 1%. They also have news rules so terrible traders cannot yolo the CPI/PMI numbers. If they don't put you on a live account ever there is probably only one reason. They're new and don't have enough startup to put everyone on a funded account. At least not until they made a crapload off fees & resets. You need like hundreds of millions in capital to be able to fund everyone who passes their evaluations and move on to a live account.