April 2, 2026

Insider Trading Law Comes to Prediction Markets - Corporate Policies Need to Catch Up

Jason Spitalnick, Christopher Tinen Snell & Wilmer + Follow Contact LinkedIn Facebook X Send Embed

Key Takeaway

The rapid growth of prediction markets — platforms offering event-based contracts tied to everything from elections to sports to corporate earnings — has created a new and largely unaddressed vector for insider trading liability. Federal regulators and prosecutors have signaled that existing fraud and manipulation frameworks apply to prediction market trading on material nonpublic information (MNPI), even where the contracts at issue are not traditional securities. Public and private companies and their counsel should evaluate whether existing insider trading policies adequately cover employee activity on these platforms.

Introduction

The convergence has been building for months, but the enforcement signals are now unmistakable. On February 25, 2026, the Commodity Futures Trading Commission’s (CFTC) Division of Enforcement issued a Prediction Markets Advisory (Release 9185-26) publicly describing MNPI-based event-contract trading as conduct the CFTC can pursue as “insider trading” under CEA § 6(c)(1) and Rule 180.1, converting what had been a theoretical warning into a documented enforcement posture. In February and March 2026, a series of statements from the CFTC, the U.S. Attorney’s Office for the Southern District of New York (SDNY), and at least one major prediction market platform itself made clear that insider trading principles, which have long been associated with securities markets, are being extended, with increasing specificity, to event-based contracts on platforms like Polymarket. The question is no longer whether regulators will pursue insider trading in prediction markets; the questions are when, how often, under what theories, and how broadly.

The Regulatory Landscape

Prediction market contracts are generally structured as event-based instruments — binary options or forward-style contracts that pay out based on whether a specified event occurs. A contract might reference, for example, whether a particular company will announce a stock split before a given date, whether a CEO will resign, or whether the Federal Reserve will raise interest rates at its next meeting. These contracts are not, in most cases, traditional securities. That structural distinction has led some market participants to assume that insider trading prohibitions do not apply to them. Several overlapping sources of federal authority suggest otherwise.

First, the CFTC has asserted regulatory jurisdiction over prediction market contracts structured as derivatives or forward instruments, particularly those traded on registered exchanges. CFTC Chairman Michael Selig has emphasized that the agency “for decades has overseen regulation of prediction markets or event contracts,” and has highlighted the potential liability facing participants who exploit MNPI. The agency’s February 25, 2026, Prediction Markets Advisory (Release 9185-26) states explicitly that the CFTC has “full authority” to police illegal trading practices on designated contract markets, including misappropriation-based insider trading. The agency’s existing commodities-fraud and market-manipulation rules, including the Commodity Exchange Act’s (CEA) prohibition on manipulation and fraud-based conduct under Section 6(c)(1) and CFTC Rule 180.1, provide statutory hooks that parallel, and in some respects mirror, the Securities and Exchange Commission (SEC) Rule 10b-5. In March 2026, the CFTC announced an Advanced Notice of Proposed Rulemaking specifically focused on event contracts and prediction markets (Release 9194-26), confirming that regulatory attention to this space is active and accelerating.

Second, depending on how a prediction market contract is structured, the SEC may have jurisdiction as well. While the Commission has not yet pursued a traditional insider trading claim in this space, SEC Chair Paul Atkins recently signaled a move toward more active oversight. In February 2026, Atkins testified before the Senate Banking Committee that prediction markets are a “huge issue” involving “overlapping jurisdiction potentially” between the SEC and CFTC. He emphasized that “a security is a security regardless [of] how it is [structured],” suggesting that contracts tied to corporate events or stock performance could fall within the SEC’s enforcement purview. Given the Chair’s comments, the fact that the SEC hasn’t yet brought a claim in this area should not be taken as a reliable indicator that it won’t.

Third, and perhaps most immediately consequential, the federal wire fraud statute (18 U.S.C. § 1343) offers prosecutors a theory of liability that does not depend on whether the instrument traded is a security or a regulated derivative at all. The statute requires proof of a scheme to obtain money or property by deception (not mere informational unfairness), which the Supreme Court reaffirmed when it narrowed adjacent fraud theories in Ciminelli v. United States, 598 U.S. 306 (2023). That constraint is readily satisfied when an insider’s prediction market wagers yield direct financial gain. Misappropriating confidential information for personal gain through interstate communications can therefore support a wire fraud charge. SDNY U.S. Attorney Jay Clayton stated that “because it’s a prediction market doesn’t insulate you from fraud.” That language is not aspirational. Recent sports-gambling prosecutions in which defendants were charged with wire fraud for placing bets based on inside information obtained in breach of a duty provide a ready template. The theory is functionally similar to the misappropriation doctrine that has anchored securities insider trading law since United States v. O’Hagan, 521 U.S. 642 (1997).

Finally, Democratic lawmakers have indicated a willingness to act with respect to prediction market-based insider trading. In recent weeks, they have introduced proposals that would restrict or prohibit certain categories of event contracts (such as those tied to government actions, elections, or other potentially sensitive or controllable events) and bar specified public officials, including senior executive branch officials and Members of Congress, from participating in these markets. While the legislative path for these proposals remains uncertain, they underscore that additional statutory restrictions could emerge depending on the outcome of the 2026 election cycle.

Platform-Level Enforcement

The regulatory picture is complicated by the fact that prediction market platforms themselves have begun policing insider trading.

Platforms, including those operating under US regulatory oversight, typically maintain terms of use and standalone trading policies that expressly prohibit trading based on inside or nonpublic information. These rules often extend to trading on misappropriated confidential information, unlawful tips, or by participants who are in a position to influence the outcome of an event. Violations can carry significant consequences, including account suspension or termination, forfeiture of funds, and, in some cases, public disclosure of enforcement actions.

This is not merely theoretical. Some platforms have begun publishing reports on their audit and enforcement activities, and have already taken disciplinary action against users for trading on nonpublic information tied to event outcomes. The platform-level enforcement action has preceded any government prosecution — a sequence that will be familiar in other regulated markets, where self-regulatory or intermediary enforcement often comes before referral to agencies such as the SEC or the Department of Justice.

The practical implication is that an employee who trades on a prediction market using confidential corporate information faces potential liability at multiple levels simultaneously: exchange-level sanctions, CFTC enforcement, possible SEC jurisdiction, and criminal prosecution under the wire fraud statute. That is the converging threat surface that exists today.

The Corporate Policy Gap

For companies and their counsel, the most pressing issue is not the theoretical scope of federal authority; it is the gap between existing insider trading policies and the activity those policies are designed to prevent.

Most corporate insider trading policies are drafted with reference to “securities,” which does not capture the majority of prediction market contracts. An employee who is prohibited from trading company stock on MNPI may reasonably (if incorrectly) conclude that placing a prediction market bet on whether the company will announce a merger is not covered. The employee would be wrong as a matter of federal law, but potentially right as a matter of corporate policy, and that gap creates exposure for both the individual and the company.

The fix is straightforward but requires deliberate attention. Insider trading policies should be reviewed to determine whether they cover event-based contracts, prediction market instruments, and derivative transactions that reference the company’s securities, business operations, or publicly reported metrics. The prohibition on use of MNPI by company employees should not depend on whether the instrument at issue is classified as a security. It should cover any transaction, on any platform, in which the employee uses MNPI obtained by virtue of their position. Pre-clearance procedures, if the company maintains them, should be evaluated for the same scope. Compliance training should be updated to conform with the revised policies and procedures.

This is not a hypothetical compliance exercise. The enforcement infrastructure is materializing in real time, from the CFTC’s statutory authority and Chairman Selig’s public statements, to the SDNY’s explicit warnings about prediction market prosecutions, to the platforms’ own enforcement machinery. The question of whether an employee’s prediction market activity exposes the company to regulatory risk is no longer speculative. The enforcement apparatus is assembling. The policies should already be in place when it arrives.

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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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