The Commodity Futures Trading Commission has a problem: It’s not very good at policing insider trading. And insider trading has become a pressing concern for prediction markets.
Even Kalshi’s recently publicized fines for insider trading — levied against a politician and an employee of YouTube influencer MrBeast — were effectively self-policing. The exchange says it’s opened 200 investigations, frozen some accounts, and had a dozen of its investigations turn into active cases.
“The volume of suspicious activity we see is significantly higher than what any platform publicly acknowledges.”
In response to Kalshi’s announcement, the CFTC put out a statement that effectively read as a sad trombone noise about its own ability to police insiders: “While Kalshi’s internal enforcement program handled these matters, under the Act, the Commission has full authority to police illegal trading practices,” the statement said. Sure, yeah, the CFTC can police this. But it didn’t. And there’s not a lot of reasons to believe it will.
The CFTC, which had about 120 staffers assigned to enforcement as of 2025, oversees not only prediction markets, but agricultural and stock futures, and part or possibly all of the crypto market. The number of people assigned to enforcement has been shrinking even as the agency’s supervision portfolio has grown — it had 160 full-time employees in 2024, and is requesting a budget for only 114 in 2026.
There are probably other insider trades that are being missed. “The volume of suspicious activity we see is significantly higher than what any platform publicly acknowledges,” says Trevor I. Lasn, who built an information dashboard called 0xInsider to track suspicious trades on Kalshi and its primary competitor, Polymarket. “Whether that’s insiders, sophisticated researchers, or a mix of both, the pattern data is there and it’s worth examining.”
Prediction markets aren’t the only thing that’s relatively new; the CFTC’s ability to police insider trading is, too. Until the passage of the Dodd-Frank Act of 2010, the only prohibited insider trading was that done by CFTC staffers and those of the exchanges it supervises. In some respects, this makes sense, given the agricultural origins of the futures market — like, who has a fiduciary duty to corn? Using the authority newly granted to it by the Dodd-Frank Act, the CFTC came up with a rule modeled on the Securities and Exchange Commission’s insider trading ban.
“The intensity of enforcement is way different.”
“At least some of the insider trading that we dislike in stocks and bonds is illegal” in commodities markets, including prediction markets, says Andrew Verstein, the faculty co-director of the Lowell Milken Institute for Business Law and Policy at UCLA. “But the intensity of enforcement is way different.”
Because the rule is so new, there have been very few enforcement actions. Two cases, one against a gas trader named Arya Motazedi and one against oil trader Jon Ruggles, were filed and settled simultaneously. A third case, against a natural gas trader named Matthew Clark, alleged Clark told a friend about his employer’s planned trades so that he could trade on this information and share the profits with Clark; Clark pleaded guilty in a related criminal case.
In the absence of a real enforcement mechanism, Kalshi and Polymarket are staking out two very different positions. Kalshi is trying to position itself as a law-abiding, self-policing exchange — even upsetting its user base by refusing to pay out on the death of Iran’s Ayatollah Ali Khamenei. Kalshi says it’s avoiding violating a CFTC rule against listing any contract “that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law.” That’s the “no assassination markets” rule, which the CFTC may or may not be serious about enforcing, who knows.
Polymarket emphatically doesn’t give a shit, and has been merrily listing geopolitical bets, including war contracts, to the tune of $425.4 million on the week ending March 1st. Its main market operates offshore, wink-wink-nudge-nudge, and so I suppose its stance is that the CFTC simply doesn’t regulate it. I say “I suppose,” because Polymarket’s press email — as well as its CEO, Shayne Coplan — didn’t respond to my requests to comment.
“If you’re insider trading, you look at prediction markets and think, ‘No one is watching, and if anyone were, no cases have been vigorously contested and no one gets in trouble.’”
Stocks and bonds, which operate under the SEC, have a more established track record with insider trading. (Even there, some inside trades likely slip through the cracks — hunting insider traders is something of a Red Queen’s race.) But there are also more people watching. If you attempt to engage in insider trading, your broker is obligated to report you. The exchanges have sophisticated software to detect weird trades, and they are obligated to report you. The Financial Industry Regulatory Authority, an organization that regulates members of the finance industry, monitors trades using software. And, of course, the SEC is watching. “All these layers of people are trying to catch you,” Verstein says. “And they may not, people get away with it a lot. But they are in an environment where they have to hide. And that’s really not true for prediction markets yet.”
The CFTC has never been an aggressive prosecutor of insider trading, Verstein says. And while Kalshi is at least attempting to police itself at the exchange level, there just aren’t as many layers of enforcement. Kalshi spokesperson Elisabeth Diana declined to say how big its enforcement staff was. What’s more, the trade group Kalshi belongs to, the Coalition for Prediction Markets, doesn’t monitor insider trading the way FINRA does.
“If you’re insider trading, you look at prediction markets and think, ‘No one is watching, and if anyone were, no cases have been vigorously contested and no one gets in trouble,’” Verstein says. Besides, if a case does somehow make it to a jury, you can just tell a story that you’re a really diligent researcher. The rules the CFTC operates under look similar to those that the SEC uses, but “in reality, the law is completely open.”
Proponents of betting markets will tell you that they surface information, including insider information, and that’s a good thing. They claim that Kalshi and Polymarket are “information institutions,” just like news organizations, and that paying for insider information provides social value by making it public. (And also that it’s just so unfair that journalists have been pointing out that leaking for reasons other than the public good — such as personal profit — might be a problem.) This is not an uncontested view; several states, including Arizona, which has charged Kalshi with operating an illegal gambling business. Those states are contesting the CFTC’s jurisdiction.
“If you can trade on when and where bombings happen, you may be tempted to change your bombing target.”
Insider trading often comes paired with its “sister sin,” market manipulation, says Verstein. “If you can trade on when and where bombings happen, you may be tempted to change your bombing target,” he says. “There are bad incentives that hide in the shadow of insider trading, so we ban it in areas where we most fear the bad incentives.”
Attempts at market manipulation have already started polluting the internet. A live map tracking the war in Ukraine showed a fictitious Russian advance for just long enough for a Polymarket bet to resolve. And both Polymarket and Kalshi have given X posters “affiliate badges” — despite a history of those accounts faking reports. As a result of a Polymarket contract, a reporter at The Times of Israel has been getting death threats because he refuses to change his reporting about a missile falling in Israel. But there are less aggressive forms of market manipulation, too — it’s possible to manipulate the odds with trades, then cash out.
“This field offers even more potential for abuse than insider trading does because you can both insider trade on information that will influence prediction markets, but you can also influence events that influence the prediction markets from an insider’s position,” said Sen. Adam Schiff of California, who has brought forward a bill to codify bans on certain prediction market activity, in an interview with The Verge. “So there are going to need to be very similar and perhaps even greater safeguards in place. And there are certain gambling and prediction betting that make no sense.”
Schiff additionally says he doesn’t trust the CFTC chair, Michael Selig. According to Schiff, Selig assured Congress in his confirmation hearing that he’d let courts decide the litigation that came before them, and meet with stakeholders to determine the processes that suit prediction markets. “And he’s done the exact opposite,” Schiff says. “It certainly seems like he has a very strong predisposition that he came into this role with in favor of these prediction betting markets.”
“There’s clearly room for new regulation.”
Selig’s apparent support isn’t enough for everyone. Polymarket’s Coplan has complained that “there’s still a lot of resistance to innovation” when it comes to prediction markets. He added, without providing evidence, that he receives emails from “people in the Middle East,” telling him that they decide whether to sleep by a bomb shelter based on Polymarket bets.
It’s not clear whether Coplan’s comment references insider information leaked on Polymarket, or just informed guessing. Israel has arrested two people for Polymarket bets, saying they used classified information. Insider information from the US government likely has also made it onto Polymarket. For instance, just before the US government snatched Nicolás Maduro, the leader of Venezuela, someone made a bet he’d be out of office, snaring $400,000 in profit. Someone else made more than half a million dollars with a suspicious bet on the death of Ayatollah Ali Khamenei.
“There’s clearly room for new regulation,” says Cindy Schipani, a professor of business law at the University of Michigan Ross School of Business. In particular, Schipani suggests it should be illegal to trade on information that may convey national security concerns. Even trading on government secrets isn’t “cleanly illegal under any laws I could cite for you, other than maybe being fraud and violating some duties you might have to your office.”
While insider trading does surface insider information, it’s obviously not an unalloyed good, points out Schipani. “Only certain people benefit, and others are harmed,” she says. This matters less in the case of, say, sports betting. When it comes to national security, however, it seems distinctly dangerous.
The best possible type of prediction market has traders who are informed without being insiders
This may be why Kalshi is trying to make sure that it isn’t associated with the anything-goes style of Polymarket — and why I get terse emails from Kalshi’s PR when I talk about prediction markets and insider trading. Kalshi uses software to monitor activity and flag unusual trades, and because the company collects the customer data of everyone on there, it can conduct a thorough investigation, says Diana, the spokesperson. Kalshi and Crypto.com have even formed an industry group, the Coalition for Prediction Markets. Notably, it doesn’t include Polymarket.
Of course, it is possible to make informed guesses about events without insider information. One might suggest the best possible type of prediction market has traders who are informed without being insiders. Markets should reward good research, says Verstein. He points to short sellers, who have surfaced fraud (for instance, at Nikola) that was then prosecuted by the Justice Department. The ability to short Nikola before making the information public was the reason someone researched the company in the first place. In that sense, the financial incentives are positive, Verstein says.
Similarly, if you see tanks rolling down the street in Pasadena, it might make sense to buy a “yes” option on “Will there be an invasion in Pasadena,” Verstein notes. If that weird little contract goes crazy, that means people notice the information. In that sense, prediction markets can function as “truth machines,” Verstein says. “That’s what made them popular with academics and political scientists for decades,” he says.
“If I knew insiders were always allowed to make a buck, I’d feel the market is rigged.”
But informed trading isn’t the majority of the order flow on these markets — it would be too hard for insiders to make money otherwise. The majority, the people that Polymarket and Kalshi are picking up through advertising, are people betting their fun money, says Nic Carter, a partner at Castle Island Ventures. Those people won’t bet if they think the markets are unfair, Carter notes. Schipani agrees. “If I knew insiders were always allowed to make a buck, I’d feel the market is rigged.”
Meanwhile, some people are trying to track insider trades so they, too, can profit. From Tre Upshaw, a former memecoin trader, there’s the “Insider Finder” portion of his tracker Polysights. He told Bloomberg in January that 85 percent of the cases he’s identified resulted in a win. Lasn’s platform, 0xInsider, attempts to identify patterns that are unlikely to come from research alone. Lasn says that insider information should be surfaced quickly, to make the markets fairer.
“When we surface suspicious activity publicly, two things happen,” Lasn said in an email. “Regular traders can factor that signal into their decisions. And the mere existence of surveillance changes behavior.”
“People are like, is this insider information?”
Which brings us back to the CFTC. While this may be the preferred regulatory agency for prediction markets — since it has consistent rules, a lighter regulatory hand, and lower taxes than state gambling authorities — its anemic enforcement of insider trading is something of a problem for Kalshi, and anyone else wanting to make sure prediction markets are fair. And that’s just on the cut-and-dried cases. Prediction markets have weirder problems too.
For instance, Jeff Bezos’ stepson may have told his University of Miami frat brothers that Bezos would not attend the Super Bowl, a thing that Kalshi makes it possible to wager on. “Bets among the fraternity brothers and their friends ran as high as $10,000 per person, with returns hitting more than 30 percent,” The Wall Street Journal wrote.
“People are like, is this insider information?” one frat brother told the Journal.
Honestly, great question. Traditionally, insider trading involves a breach of confidence and fiduciary duty, says Schipani. What fiduciary duty would Bezos’ stepson be violating by telling his frat brothers Bezos’ location? “It’s like the wild west right now,” Schipani says.
With reporting by Lauren Feiner.