After a series of suspiciously timed, highly lucrative bets, federal prosecutors have begun exploring whether insider trading laws are being broken via prediction markets. A handful of users have been making big money off the apps Polymarket and Kashi, and a growing number of critics warn that they must have received insider information pertaining to TV show finales, elections and President Donald Trump’s decisions regarding the war on Iran.
Prediction markets have exploded in popularity in recent years, allowing users to gamble on a vast range of yes-or-no questions. Sometimes the bets are on low-stakes matters like the outcome of a television series, but lately, a number of high payout bets tied to major geopolitical events have been in the news, such as a $400,000 win off a bet made just hours before Trump’s surprise raid and arrest of ex-Venezuelan President Nicolas Maduro, or several waves of bets linked to Trump’s statements regarding the war on Iran.
The timing of these bets has investigators looking into whether insider trading occurred, and whether such laws are applicable to prediction markets in the first place. Currently, it is largely up to prediction apps to police themselves — which different companies have done to different degrees with varying success — but some federal prosecutors are now saying these regulations should be formalized.
Democrats agree. Last week, over 40 House and Senate Democrats signed a letter to Trump Administration officials urging action on such insider trading.
“Given the exponential growth in prediction market trading, rising evidence suggesting possible governmental insider trading in prediction markets, and potential confusion surrounding existing law in this area,” the Democratic letter asked relevant agencies to “issue guidance reminding federal employees of their existing legal obligation to refrain from using their insider governmental information to profit from prediction market trades.”
So far, attempts to ban election-related betting have failed, which has led to an explosion of such gambling over the past two years. Now when it comes to addressing insider trading, some experts are skeptical that action will be taken.
“I think it will be difficult. You can’t criminally prosecute someone if the law is vague,” said Aitan Goelman, a criminal defense lawyer who previously served as the director of enforcement at the Commodity Futures Trading Commission, which theoretically oversees prediction markets. “Prosecutors would have to show not only that someone was trading in possession of material nonpublic information, but they were doing it in violation of some kind of fiduciary duty or duty of trust. But all this is untested.”
Then there is also the question of the Trump family’s involvement in prediction markets and their regulation. President Trump’s administration is notoriously anti-regulation and has already expressed a desire to expand prediction market access. At the same time, Donald Trump Jr. is on the advisory board at Polymarket, and the wider Trump organization has leaned into investing and profiting off such platforms.
This, warn critics, sets up a dynamic in which neither the fairness of prediction markets nor those tasked with regulating them can be trusted.
“It’s not fair for anyone, especially federal officials, to use inside information when betting on prediction markets,” said Senator Elizabeth Warren (D-MA). “Donald Trump’s CFTC shouldn’t let public officials get away with rigging prediction markets against working people.”
