Federal regulators and prosecutors are scrambling to adapt insider-trading enforcement tools to the rapid growth of prediction markets, where traders are increasingly wagering on political events, military operations and government decisions that may be influenced by confidential information held by insiders in Washington.
According to a Wall Street Journal report, authorities have launched a series of investigations into suspicious trading activity on prediction-market platforms including Kalshi and Polymarket, reflecting growing concerns that federal employees, military personnel and politically connected traders may be profiting from sensitive nonpublic information.
The challenge for regulators is that existing insider-trading laws were developed largely around securities markets and corporate disclosures, not wagers tied to elections, foreign policy or military operations. As the Journal noted, “insider-trading laws weren’t designed for people who bet on the outcome of legislation, political races and even U.S. military operations.”
That legal gray area is now testing enforcement agencies including the Commodity Futures Trading Commission and the Manhattan U.S. Attorney’s Office, which are leading many of the probes.
The issue gained new prominence following the arrest last month of U.S. Army special forces soldier Gannon Ken Van Dyke, who prosecutors allege used confidential information about a plan to remove Venezuelan President Nicolás Maduro to place profitable bets on Polymarket. Prosecutors allege Van Dyke earned roughly $400,000 wagering that Maduro would be ousted before February. He has pleaded not guilty.
David Miller, the CFTC’s enforcement chief, signaled that regulators view the Maduro case as only the beginning of a broader crackdown. “Unfortunately, as people know, it’s become a real problem in prediction markets,” Miller said at George Washington University Law School. “It has serious consequences for market integrity and trust.”
The Journal reported that authorities have sought information from Kalshi and Polymarket regarding wagers tied to political developments and military operations involving Iran and Venezuela. Prosecutors are also examining unusual trading in oil futures ahead of a March 23 announcement by President Donald Trump delaying attacks on Iranian power plants, a decision that reportedly triggered sharp market swings in both energy and equities.
Related: CFTC Is Using AI to Combat Insider Trading on Prediction Markets
Prediction-market operators say they are attempting to police suspicious activity internally. Kalshi’s co-founder previously disclosed that the company had conducted more than 200 investigations and referred several matters to law enforcement. The company has also reportedly investigated whether spouses of military officials used confidential information obtained through conversations with service members to place bets on event contracts.
Kalshi additionally said it fined and suspended three congressional candidates for betting on their own races, though the company said the amounts involved were less than $6,500 and were not referred for criminal investigation.
Polymarket, meanwhile, said it has referred nearly 100 crypto wallets to authorities after internal reviews uncovered suspicious activity. “Our internal process has led to the company affirmatively referring nearly 100 wallets to the authorities,” Polymarket Chief Legal Officer Neal Kumar told the Journal.
Still, enforcement officials face significant legal hurdles. Courts traditionally define insider trading through cases involving corporate executives trading securities based on material nonpublic information. Extending those theories to political or military prediction markets may prove more difficult because prosecutors must establish both the confidential nature of the information and the trader’s duty not to misuse it.
“It’s very rare that the government is going to get a smoking gun to prove the trader had material nonpublic information,” said former CFTC Commissioner Christy Goldsmith Romero. “In the very clear cases, which seems to be what we just saw in the Maduro prediction market case, it is really important for the government to bring that case fast.”
Legal experts also noted the political complications surrounding enforcement. “It’s one thing if you go after bread-and-butter insider trading and you catch an investment banker,” Georgetown University professor James Angel told the Journal. “It is another thing altogether” when the trader is politically connected in Washington.
The investigations come as the Trump administration has broadly supported the expansion of prediction markets, even as regulators warn that the platforms’ rapid growth may be outpacing compliance safeguards and record-keeping requirements. Manhattan U.S. Attorney Jay Clayton criticized some platforms this week for lacking the customer-identification records needed to assist law enforcement. “If they are going to function in a way that society can have confidence in them, I think they are going to have to have that record-keeping,” he said.
