On Jan. 3, soon after U.S. forces captured Venezuelan president Nicolás Maduro at his compound in Caracas, the political researcher Tyson Brody noticed strange activity on Polymarket. Brody is one of a growing group of observers who monitor for unusual trades on the platform, which allows people to gamble on the outcome of future events, from the weather to NFL games to governmental upheavals.
Following Maduro’s capture, Brody found one user, who only created their account a week before, had taken a massive position on Maduro leaving office. The user, Burdensome-Mix, had become the largest holder of “yes” contracts for the event—which paid out in the event Maduro was toppled before the end of January—well before the news of the raid reached the public. The user ended up making over $400,000 from the well-timed trade. Brody’s early morning post quickly went viral, spurring widespread accusations of insider trading and a growing backlash against unchecked prediction markets by lawmakers.
The controversy comes as courts and regulators struggle to define rules for prediction markets, which have exploded in popularity, with Polymarket netting a $9 billion valuation late last year. Critics argue that trades like the Maduro bet threatens the integrity of U.S. markets, while proponents maintain that companies like Polymarket function as truth machines, informing the public faster than traditional media. Some hardline libertarians even contend that insider trading is a feature, not a bug, with information more likely to surface due to financial incentive.
Many Democrats disagree, including Rep. Ritchie Torres (D-NY), who on Friday introduced a bill that would crack down on government employees’ ability to use the platforms. “The intersection of insider trading and government decision making is not only corrupting to the market, it’s corrupting the government itself,” Torres told Fortune in an interview.
Betting on the future
Prediction markets have existed in the U.S. for decades on a small scale, but the twin rise of Polymarket and rival Kalshi over the past few years has vaulted them into the mainstream—and raised questions about how to police the nascent platforms. Kalshi won a crucial court victory before the 2024 presidential election that allowed it to list political contracts, while Polymarket is poised to return to the U.S. after the Commodity Futures Trading Commission barred it from operating in the country in 2022.
As Kalshi and Polymarket have grown, they have moved into all sorts of sectors, from sports to political contracts, where users might have insider knowledge of future events. In its rulebook, Kalshi explicitly bans insider trading from anyone who has access to material nonpublic information related to a contract, or could exert influence on the subject of the contract. Polymarket founder Shayne Coplan has stated that his platform can self-police insider trading by its own users and has the ability to conduct internal audits, the Wall Street Journal reported. A Polymarket spokesperson declined to comment.
Torres’s bill would narrowly focus on government employees, banning anyone from trading on prediction market platforms who has access to material nonpublic information relevant to the contract—or, more broadly, who could reasonably obtain the information.
A former CFTC attorney, who spoke with Fortune on the condition of anonymity due to potential client conflicts, said this would represent an expansion of how the agency currently polices government insider trading, including the so-called “Eddie Murphy rule,” named for the actor’s film Trading Places, which prohibits trading on misappropriated government information.
Torres’s senior advisor Benny Stanislawski told Fortune that the idea was to start with a wide scope that could later be narrowed by the agency during the rulemaking process. Still, he argued it was important to include people who might reasonably get access to insider information given the often porous nature of government, such as a House staffer overhearing a discussion in the halls of the U.S. Capitol. The effort mirrors other legislative initiatives to ban lawmakers from trading individual stocks.
Even if Torres’s bill does pass, questions remain about whether the perpetually underfunded CFTC has the capacity to investigate insider trading allegations, especially given the vast array of markets that Polymarket and Kalshi operate in and people who could have access to material nonpublic information. “If there were a significant amount of [insider trading] going on, it would be very hard with the agency’s current resources to effectively police them,” said the former CFTC attorney, who noted that most of the agency’s leads come from whistleblowers.
Kalshi cofounder Tarek Mansour endorsed Torres’s bill in a LinkedIn post, implying that Polymarket is an “unregulated, non-American” company. Torres told Fortune that he sees his proposed legislation as a starting point to implement more robust regulation for prediction markets, though he admitted he has not yet received bipartisan support. “The status quo strikes me as unsustainable,” Torres said. On Friday, his colleague Rep. Dina Titus (D-Nev.) sent a letter to Polymarket’s Coplan requesting more information on his platform’s safeguards to prevent insider trading. Republican lawmakers have not publicly commented on Torres and Titus’s efforts.
Mansour has stated that the long-term goal of his company is to “financialize everything” by turning any difference in opinion, from the deposition of world leaders to the outcome of a basketball game, into a tradable asset. But for Brody, the political strategist who surfaced the Maduro trade, the latest episode is just another example of the unfair nature of the financial system. “It hits all the corruption high notes while happening brazenly in the open,” he told Fortune. “Prediction markets can confirm a lot of people’s nagging suspicions about systems being rigged and honestly being penalized instead of rewarded in today’s economy.”
