backA recent spate of suspiciously timed and highly profitable bets on prediction markets have ignited concerns over whether insiders are quietly gaming the system. According to reports, shortly before the capture of Venezuelan president Nicolas Maduro, an anonymous Polymarket user bet more than $32,000 that Maduro would be ousted within weeks, yielding a return of more than $400,000. Another report indicated that, in December 2025, a Polymarket user’s accurate bets on Google’s 2025 Year in Search rankings resulted in a payout of nearly $1,000,000. That same account earned over $150,000 by also accurately predicting the exact launch date of a new Google product. And in October 2025, a new user on Polymarket also reportedly bet $40,000 that OpenAI would launch an AI web browser by month’s end, thereby turning a profit of nearly 20 percent. 1Julia Shapero, Prediction markets draw fresh scrutiny after massive Maduro bet, The Hill (Jan. 14, 2026); Harsh Notariya, Polymarket Trader Makes $1 Million on Google Search Bets, Sparking Insider Trading Fears, Yahoo Finance (Dec. 5, 2025); Ece Yildirim, Tracking Insider Trading on Polymarket Is Turning Into a Business of Its Own, Gizmodo (Jan. 12, 2026).
Such behavior mirrors the history of trading in the public securities markets in the nineteenth and early twentieth centuries, where, before the passage of the federal securities laws in the 1930s, corporate insiders routinely used nonpublic information for personal profit. 2E. Woodrow Eckard & Ajeyo Banerjee, Why Regulate Insider Trading? Evidence from the First Great Merger Wave (1897–1903), 91 Am. Econ. Rev. 1329 (2001).
Popular platforms like Kalshi and Polymarket, on which weekly notional volumes have exploded to $6 billion, prohibit users from engaging in insider trading or “fraudulent trading.”3Olga Kharif, Crypto Traders Flee to Prediction Bets After Crash, Bloomberg (Jan. 26, 2026). Within the betting community, “watchdog” accounts flag suspiciously timed bets by potential insiders, perhaps to enable piggybacking by others. But more traditional observers are also watching and reacting. After the Maduro bet, U.S. Rep. Ritchie Torres introduced a bill that would ban government officials from insider trading on prediction markets.
These events raise the question: what rules, if any, meaningfully constrain insider conduct in prediction markets? The Securities Exchange Act of 1934 prohibits insider trading in securities. It is unclear whether bets on prediction markets are “securities” under federal law. SEC Chair Paul Atkins recently said the SEC may have concurrent jurisdiction with CFTC in certain cases involving prediction markets, though jurisdiction is “mostly, at least currently, on the CFTC side.”4Sander Lutz, SEC Chair Suggests Some Prediction Markets Could Fall Under Agency’s Jurisdiction, Decrypt (Feb. 12, 2026). Assuming CFTC is the primary regulator for now, is an analog needed to address insider betting, or is the current regulatory regime sufficient to hold insider bettors accountable? While additional legislation may be warranted, there are several statutes already on the books that would, in many if not most circumstances, prohibit insider trading on prediction markets. General fraud statutes and certain CFTC regulations may apply, particularly where the trader is placing bets based on information learned through work or that is otherwise subject to confidentiality restrictions.
CFTC Regulations
The CFTC regulates the two largest platforms, Kalshi and Polymarket, as designated contract markets (“DCMs”). In an advisory released on February 25, 2026 (the “Advisory”), the CFTC’s Enforcement Division stated it had “full authority to police illegal trading practices occurring on any DCM.”5CFTC Enforcement Division Issues Prediction Markets Advisory, CFTC Rel. No. 9158-26 (Feb. 25, 2026). “Without limitation,” the CFTC detailed several practices it may investigate or prosecute under the Commodity Exchange Act (“CEA”) or regulations promulgated thereunder, including:
- “Misappropriation of confidential information in breach of a pre-existing duty of trust and confidence to the source of the information (commonly known as ‘insider trading’) pursuant to Section 6(c)(1) of the [CEA], and [17 CFR §] 180.1(a)(1) and (3)”;
- “Pre-arranged, noncompetitive trading and wash sales, under Section 4c(a)(1) and (2)(A) of the [CEA], and [17 CFR §] 1.38(a)”;
- “Other prohibited trading practices including disruptive trading pursuant to Section 4c(a)(5) [of the CEA]”; and
- “Fraud and manipulation under various sections of the [CEA].”6Id.
As its impetus, the Advisory highlighted two recent Kalshi disciplinary actions that involved potential violations of Rule 180.1. In May 2025, Kalshi imposed a financial penalty and suspension on a user who traded on his own political candidacy in violation of Kalshi rules on trading where the user has influence over an outcome. The CFTC stated that this fact pattern represented a potential violation of CEA § 6(c)(1) and Rule 180.1(a)(1) and (3) for use of a manipulative scheme or artifice to defraud, or engaging or attempting to engage in an act, practice or course of business that operates as a fraud on any other person. In the second, Kalshi discovered that a trader was a YouTube channel editor who likely had advance knowledge of channel videos prior to publication. The CFTC stated that successful trades the user made relating to the channel potentially violated prohibitions on misappropriation of confidential information in breach of a pre-existing duty of trust and confidence to the source of the information pursuant to CEA § 6(c)(1) and Rule 180.1(a)(1) and (3) 7Id..
In taking the unusual step of publicly characterizing cases of internal platform discipline as potentially illegal, the CFTC has put traders on notice of its interest in enforcement.
Consistent with CFTC’s Advisory, Rule 180.1, modeled on SEC Rule 10b-5, may provide a straightforward source of liability for illegal trading in connection with prediction market bets classified as event contracts.8CFTC Reaffirms Exclusive Jurisdiction over Prediction Markets in U.S. Circuit Court Filing, CFTC Rel. No. 9183-26 (Feb. 17, 2026). Indeed, Rule 180.1 has figured in numerous other enforcement actions over insider trading in commodities markets.9See, e.g., In re Classic Energy LLC, CFTC Dkt. No. 19-50 (Sept. 30, 2019). Most companies impose on employees an obligation to maintain the company’s information in confidence and not to use it for personal gain. If an employee were to violate such a policy by placing a bet based on information learned at work, such conduct would likely be deemed by the CFTC to violate Rule 180.1 (on the ground that the employee defrauded his or her own employer by misappropriating the company’s information for personal gain). But as the CFTC has interpreted its rule, a platform user who obtained MNPI through fraud or deception could violate Rule 180.1 even absent a duty owed to one’s employer. For example, a corporate insider (even a former employee) could violate a duty by trading on MNPI while being bound by an NDA.10Cf. United States v. Chow, 993 F.3d 125 (2d Cir. 2021) (securities-fraud case finding NDA sufficient to impose duty not to trade on MNPI).
In its Advisory, the CFTC was also clear that platforms themselves will play a role in policing insider trading. The CFTC emphasized that DCMs have an “an independent duty to maintain audit trails, conduct surveillance, and enforce rules against prohibited practices.” The CFTC made clear that it would work with platforms in seeking referrals of potential violations for investigation.11CFTC Enforcement Division Issues Prediction Markets Advisory, CFTC Rel. No. 9158-26 (Feb. 25, 2026).
Though not explicitly referenced in the Advisory, a separate CFTC regulation—17 CFR § 1.59(d)— has been invoked in insider-trading cases involving tipping by commodities-industry insiders.12E.g., CFTC v. Byrnes, No. 13-cv-01174 (S.D.N.Y. 2020). That regulation prohibits, among other things, DCM personnel from tipping or trading on the basis of MNPI “obtained through special access related to the performance of such person’s official duties.” The CFTC may apply the regulation to employees of prediction-market platforms regulated as DCMs. Platform employees take advantage of their visibility into platform bets to engage in their own opportunistic trades.
Wire Fraud, Commodities Fraud, Conversion, and the CFAA
Beyond the CFTC authorities above, federal fraud statutes may apply. Indeed, in a recent keynote, U.S. Attorney for the Southern District of New York Jay Clayton said he anticipated prosecutions involving prediction markets in the future (“Because it’s a prediction market doesn’t insulate you from fraud.”). 13Wall Street’s Top Cop Expects Enforcement on Prediction Markets – Bloomberg, Securities Docket (Feb. 6, 2026).
The federal wire fraud and commodities fraud statutes have been used together in cases involving insider trading in commodities. For example, in 2021, a natural gas trader pleaded guilty to one count of conspiracy to commit commodities fraud and wire fraud. As part of his guilty plea, the trader admitted that he conspired with others to misappropriate MNPI and to use that information to engage in fraudulent, pre-arranged trades in natural gas futures contracts. 14United States v. James, No. 20-cr-695 (S.D. Tex. Feb. 1, 2021), ECF No. 20 (Plea Agreement).
As we also highlighted last year, DOJ used the wire fraud statute against a non-fungible token (“NFT”) trader, Nathan Chastain. Following the Second Circuit’s reversal of Chastain’s conviction, prosecutors may face an additional burden when using the wire fraud statute to pursue insider trading—they must show that the misappropriated information had commercial value to the entity seeking to keep it confidential.15United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *9 (2d Cir. July 31, 2025). Chastain is likely to remain the standard in the Second Circuit on wire fraud for now—on January 21, 2026, DOJ filed its intent to dismiss the indictment with prejudice rather than retry the case as part of a deferred prosecution agreement. United States v. Chastain, No. 22-cr-00305 (S.D.N.Y. Jan. 21, 2026), ECF No. 169. This could pose a challenge where information may have intrinsic value to a trader or bettor but not clear commercial value to a company—for example, data regarding the financial stability of a third party in an unrelated industry acquired through confidential business discussions.
The recent NBA gambling scandal suggests the wire fraud statute could be used as an enforcement tool in these cases. In October 2025, multiple defendants were charged with wire fraud over alleged use of inside information about player availability from NBA players and coaches to profit from illegal betting activity.16United States v. Earnest, No. 1:25-cr-00323 (E.D.N.Y. Oct. 16, 2025) (Indictment). In order to satisfy Chastain, DOJ may need to argue the protection of player availability information is necessary to ensure the integrity—and thus economic value—of NBA games.
Another federal statute, 18 U.S.C. § 641, may be particularly appropriate for event contracts based on elections or other political events. Among other things, the statute prohibits the conversion of money, property, or a “thing of value” of the United States. In one recent insider-trading case, federal prosecutors charged a current CMS employee, a former CMS employee, and two hedge fund partners with improperly using confidential CMS information. The Second Circuit later threw out their § 641 convictions, ruling that the CMS reimbursement rate data was not “property” or a “thing of value.” But the court also made clear that confidential government information can qualify as such in other circumstances.17See United States v. Blaszczak, 56 F.4th 230, 243-44 (2d Cir. 2022).
While the Supreme Court narrowed the potential use of the Computer Fraud and Abuse Act (“CFAA”) for criminal prosecutions of terms-of-service violations,18Van Buren v. United States, 593 U.S. 374 (2021). the CFAA’s civil-liability provisions may support claims brought by platforms against certain violators who engaged in fraudulent trading (e.g., repeat violators who ignored cease-and-desist communications).1918 U.S.C. § 1030(g). Platforms could also bring claims for breach of contract.
State Law Options
State regulators also have certain enforcement tools. For instance, the California Department of Justice and Department of Financial Protection & Innovation prosecute cases involving commodities fraud in violation of the California Commodity Law of 1990 (Cal. Corp. Code §§ 29520 and 29536). Similarly, under New York’s Martin Act, the New York Attorney General is broadly empowered to bring enforcement actions for fraudulent practices involving the purchase or sale of securities or commodities.20N.Y. Gen. Bus. Law, art. 23‑A, § 352 et seq. Attorney General Letitia James has also specifically focused on curtailing risk in prediction markets, issuing a consumer alert ahead of the Super Bowl on the risks of sports betting on prediction markets.
While there have been no public state enforcement actions for insider trading on prediction markets, states have broad-reaching tools at their disposal that they may attempt to use in bringing cases against individuals engaging in commodities fraud.
Conclusion
Ultimately, liability for insider trading in prediction markets would stem from applying traditional laws in new contexts. Specifically, these laws and regulations may apply to insiders using information obtained through work, whether from the U.S. government or a private employer, or that is subject to an NDA.
Even if the Trump administration does not end up aggressively policing insider betting on prediction markets, the statutes of limitations for some of the authorities above may be long enough to stretch into the next administration. With many laws on the books and the potential for live claims under a future administration, companies should consider revisiting their policies and procedures that address insider trading to take into account prediction markets and new and emerging trading/betting platforms.