CFTC Vows Prosecution for 5 Types of Prediction Market Trades

The US commodities regulator will pursue insider traders on prediction markets as one of its five top priorities, a significant policy shift that targets a rapidly growing industry grappling with a series of suspiciously profitable trades.

“A myth has spread that insider trading is permissible, or even encouraged, in the prediction markets,” David Miller, the new enforcement chief at the Commodity Futures Trading Commission, said Tuesday at a New York University School of Law event. “Not so.”

Miller, a former federal prosecutor, said the CFTC’s position is that event contracts are swaps subject to its jurisdiction and that existing insider trading laws apply. Besides insider trading, he listed four other priorities for his division: market manipulation, particularly in energy markets; abuse like spoofing and wash trading; retail fraud schemes; and violations of anti-money laundering rules.

The warning shot comes as prediction platforms like Kalshi and Polymarket have seen explosive growth, with Kalshi alone handling more than $1 billion in wagers related to the Super Bowl, according to Business Insider. The increased volume has been accompanied by a series of well-timed bets ahead of major geopolitical events, drawing scrutiny from lawmakers and federal prosecutors and forcing the platforms to tighten their rules.

Suspicious Trades Spark Scrutiny

The regulatory focus follows several instances where traders reaped enormous profits from bets that appeared to be based on nonpublic information. In one case reported by multiple outlets, an anonymous Polymarket user made over $400,000 betting on the capture of Venezuelan leader Nicolás Maduro.

More recently, analytics firm Bubblemaps identified six accounts on Polymarket that collectively profited by $1.2 million from bets placed just hours before U.S.-Israeli attacks killed Iranian Supreme Leader Ayatollah Ali Khamenei, Reuters reported. These events have fueled concerns among lawmakers that government officials could be using privileged information to profit. In a March letter, top Democrats on four congressional committees urged the CFTC to issue guidance reminding federal employees that they are prohibited from such activity.

A Patchwork of Regulatory Pressure

The CFTC is not the only agency examining the space. Federal prosecutors in Manhattan’s securities and commodities fraud unit have also met with representatives from Polymarket to discuss how existing laws could apply to the industry, CNN reported. The Justice Department is reportedly investigating several lucrative trades.

This multi-agency attention has created a complex regulatory environment. While the CFTC under the Trump administration has signaled a more hands-off approach, some states are moving aggressively. Arizona recently filed criminal charges against Kalshi for allegedly operating an illegal gambling business, a claim the company calls “paper thin.”

In response to the mounting pressure, the platforms are moving to self-regulate. Both Polymarket and Kalshi introduced new rules in March to explicitly ban trading on confidential information. Kalshi announced it had already fined and banned a political candidate for betting on his own election and an editor for the popular YouTuber MrBeast for trading on information related to video production. This marks a sharp reversal for Polymarket, whose founder Shayne Coplan had previously called the potential for insider trading “cool,” according to Business Insider.

However, prosecution remains a complex challenge. Aitan Goelman, a former CFTC enforcement director, told CNN that prosecutors would need to prove a trader acted in violation of a fiduciary duty or duty of trust, an untested legal theory in this context, particularly for trades on offshore platforms.

This article is for informational purposes only and does not constitute investment advice.