CFTC Signals Crackdown on Prediction Market Insider Trading

April 8, 2026

Playing the odds – or the information?: The CFTC signals a crackdown on prediction market insider trading, and how companies should respond

John Beckman, Jerrob Duffy, Ann Kim, Gregory Lisa, Peter Spivack Hogan Lovells + Follow Contact LinkedIn Facebook X Send Embed

Just before Nicolás Maduro was deposed, an anonymous trader purchased an event contract on a prediction market wagering that the Venezuelan leader would be out of power by the end of January. The trader made a profit of nearly half a million dollars. The following month, in the hours before the U.S. carried out a military action in Iran, scores of anonymous prediction market traders purchased event contracts totaling nearly $900,000 tied to the position that the U.S. would strike Iran by the next day. They made millions.

These and other headline-grabbing trades have raised suspicions that some prediction market participants are profiting from misappropriated inside information – and that others may be sharing such inside information, despite statutory, contractual, and government prohibitions. In recent months, lawmakers have put increasing pressure on the Commodity Futures Trading Commission (CFTC or the Commission) to take action.

On March 31, 2026, the CFTC’s newly minted Director of Enforcement, David Miller, made clear that the agency is ready to do just that. In remarks made at New York University (NYU), Miller named insider trading in prediction markets as a “top priority” for his enforcement team. But he also highlighted an important hurdle to effectively policing this conduct: “[T]here’s a myth…that insider trading doesn’t apply to prediction markets.”

In recent weeks, lawmakers have requested that the CFTC issue guidance to government employees to dispel this myth and make clear that the use of “insider governmental information to profit from prediction market trades” is prohibited. But trading on prediction markets is not limited to military strikes and world events – and insider trading risk on these platforms is not limited to government employees.

Critically for public companies, traders can purchase event contracts tied to key corporate events like earnings reports, merger announcements, and Food and Drug Administration (FDA) approvals, among other things. The risks associated with prediction markets for public companies garnered attention recently when the Chief Executive Officer (CEO) of Coinbase closed out the company's Q3 2025 earnings call with a list of words that prediction market traders had projected he would say. The volume of trading in those markets totaled around $84,000 between Kalshi and Polymarket.

Although this incident has been framed as a “stunt,” the potential for corporate insiders to use a company’s material nonpublic information (MNPI) to profit from prediction markets is clear. As authorities begin to take action against this new brand of insider trading, public companies should consider addressing this new form of trading on prediction markets in their existing policies and codes of conduct and ethics and think about providing guidance to their employees on prediction market trading risks.

What is a prediction market?

Prediction markets are exchanges on which participants buy and sell contracts – known as “event contracts” or “event futures contracts” – related to the outcome of future events. Kalshi and Polymarket are the largest and best-known U.S.-based prediction markets, but others are emerging as the platforms become more mainstream.

On most platforms, event contracts are priced between $0 and $1 based on the odds of an event occurring. If an event has 60 percent odds of occurring, for instance, a “yes” contract will cost $0.60. If the event occurs, those that staked out the “yes” position will collect $1 ($.040 profit) and those that purchased the “no” position will collect nothing (loss of investment). The reverse is also true: if an event does not occur, those that purchased the “no” position collect $1 and those that purchased the “yes” position collect nothing.

Kalshi, Polymarket, and other prediction markets offer traders the opportunity to “trade on anything” – with few exceptions. The platforms offer odds on events ranging from the outcome of a college basketball game to the length of a White House press conference.

Major platforms offer a variety of event contracts tied to corporate announcements and outcomes. Markets exist to trade on “mentions” – or what words a public figure or company will use during a given appearance. For example, the “What will Nike say on their next earnings call?” market on Kalshi resolved to “yes” for terms including “retailer”, “supply chain,” and “tariff,” but “no” on terms including “consumer demand” and “digital sales.” In the life sciences sector, traders can purchase event contracts related to regulatory submissions and approvals. Kalshi currently offers a market speculating on “When…Beam Therapeutics [will] submit a [Biologics License Application] for Risto-cel?” And trades related to the timing and circumstances of corporate initial public offerings (IPOs) (e.g., “When will [Company] officially announce an IPO?” and “Which bank will take [Company] public?”) proliferate.

States and the federal government have staked out opposite positions on who should regulate prediction markets and how. While states believe prediction markets constitute “gaming,” major platforms and the CFTC have taken the position in public statements and court filings that event contracts should be considered federally regulated “swaps.” To entrench that position, Kalshi and Polymarket have both registered with the CFTC as designated contract markets (DCM) and report regularly to federal regulators on trade activity. The Third Circuit recently sided with prediction market platforms and the CFTC to find that, because Kalshi is a DCM, the CFTC has exclusive jurisdiction to regulate trading on the platform.

Insider trading and prediction markets: The DOJ and CFTC signal their authority

The structure of prediction markets and the nature of event contracts present obvious potential for traders to use inside information to inform their positions. Some economists – and the CEO of Polymarket – have even suggested that insider trading on these platforms is a “public good” that enables quick public access to accurate information about events.

But if these markets are federally regulated, federal insider trading laws apply to prohibit such activity – and the CFTC and the Department of Justice (DOJ) are signaling their readiness to enforce those laws. Recent comments made by CFTC Director of Enforcement David Miller confirm that insider trading on prediction market platforms is in the Commission’s crosshairs. The CFTC is actively hiring enforcement staff to pursue these and other priority cases. Miller’s comments follow a February 2026 CFTC Prediction Markets Advisory outlining the sources of the CFTC’s authority to police insider trading and other manipulative practices on DCMs, which include Section 6(c)(1) of the Commodities Exchange Act (CEA) and 17 CFR § 180.1 – modeled on Section 10(b) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission’s (SEC’s) Rule 10b-5, respectively. These provisions prohibit “[m]isappropriation of confidential information in breach of a pre-existing duty of trust and confidence to the source of the information.”

The DOJ has also engaged in some recent saber-rattling. The U.S. Attorney for the Southern District of New York (SDNY or the Office) – and former chair of the SEC – Jay Clayton said at a Securities Docket conference in February 2026 that his Office is looking to pursue fraud and insider trading cases related to prediction markets. And reporting suggests that SDNY section chiefs recently met with representatives from Polymarket to discuss insider trading and other laws prohibiting manipulative trading on the platform. The Office has made clear that “various laws, including insider trading laws, anti-money laundering laws, laws prohibiting manipulation, and various anti-fraud laws are applicable” to prediction markets.

As these pronouncements make clear, existing statues provide an array of avenues for federal authorities to pursue enforcement against insider trading in prediction markets. Although some traditional theories of insider trading liability would require proof of a violation of a fiduciary duty or duty of trust, prosecution for market manipulation under 18 U.S.C. Section 1348 would not require such proof and may be a path to prosecution in some of the more unique prediction market-specific scenarios.

The trading platforms appear to be cooperating with federal enforcement efforts. Kalshi established an in-house enforcement and investigations department and has partnered with Wharton Forensics Lab and Solidus Labs to use artificial intelligence (AI) to identify suspicious trades for investigation and reporting to the CFTC and DOJ. The CFTC and Kalshi recently announced that Kalshi had referred two insider trading cases to the CFTC following internal investigations. Polymarket also recently updated its terms of use to clarify prohibitions against insider trading on the platform.

Although neither the CFTC nor DOJ have filed charges in any prediction market insider trading cases yet, the message is clear: federal enforcement authorities are watching these markets and preparing to take on fraudulent trades.

How should public companies respond?

With federal enforcement authorities gearing up to fight insider trading in prediction markets and prediction market platforms actively identifying and reporting potentially tainted trades, companies should consider evaluating their existing policies and training related to insider trading to potentially incorporate risks related to prediction markets.

The potential for key corporate events like mergers and acquisitions, earnings reports, and regulatory approvals to impact company stock prices is well established, but prediction market trading on these events adds an additional layer of complexity – and an additional opportunity for misuse of MNPI. As CFTC Director of Enforcement David Miller recently highlighted, even employees who are mindful of their responsibilities as they relate to MNPI in the context of traditional securities may not appreciate those responsibilities as they relate to prediction markets – and company policies may not adequately guide them on what those responsibilities are.

Despite signals to the contrary, some in the industry are skeptical that the CFTC and DOJ have the capacity to take meaningful action against prediction market insider trading, given staff losses and political headwinds in the last year. But even if the federal government declines to pursue enforcement immediately, the statute of limitations on many of the applicable statutes means a new administration could take a different approach. And companies could face related litigation risk from non-federal sources as well, including state attorneys general, shareholders, and civil plaintiffs.

To prepare for increased federal scrutiny of event contract trading and to ensure that their employees understand insider trading risks as they relate to prediction markets, companies should consider the following:

• Reviewing existing insider trading policies and codes of conduct/ethics. Because event contracts are derivatives, not securities, and are not directly tied to companies, existing policies may not cover prediction market trades. Companies should consider expanding those policies to explicitly include prohibitions on the use of MNPI to buy and sell event contracts.
• Prohibiting prediction market trading during any “blackout period” before the public announcement of MNPI – or prohibiting trading by employees in company-related event contracts entirely.
• Training employees on insider trading policies and emphasizing that insider trading on prediction markets is illegal. [View source.]

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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