In recent months, the rise of these prediction markets has also given rise to a series of high-profile controversies. One saw a Polymarket user wager $32,000 that President Nicolás Maduro of Venezuela would soon be out of power—a bet placed only hours before U.S. Special Forces captured Maduro, earning the bettor a $400,000 payout. Similar well-timed wagers related to the current Middle East conflict led one publication this week to ask: “Are White House insiders making a killing on the Iran war?”

Insider trading on prediction markets is hardly limited to geopolitics. The problem has also bubbled up in domains like elections, where a California gubernatorial candidate wagered on his own candidacy, and in the tech industry, where a trader made $1.2 million by correctly predicting Google’s “Year in Search” results before they were released. There are also fears professional athletes could use prediction markets to bet on their own performance, which has been a growing problem on conventional betting sites. 

Meanwhile, the incidents to emerge so far may be only the tip of the iceberg. Given the massive volumes on the platform, it’s a near certainty that other insiders in government and companies have used confidential information to enrich themselves. Polymarket may be especially prone to these shenanigans, because its corporate structure for now leaves it outside of U.S. and state laws: Its offshore platform lets users not only place bets, but create wagers of their own with little scrutiny or oversight.

The growth of prediction markets, which are also capable of producing valuable real-world intelligence, has been spurred by recent court rulings, but also by support from the White House, which generally favors deregulation in all sorts of financial markets. President Donald Trump’s son Don Jr. is an investor and advisor to Polymarket, and a paid advisor to its primary competitor, Kalshi. Meanwhile, the president himself has made clear financial crimes are not a priority for his administration, dismissing or suspending many cases, and in some instances dismantling offices responsible for prosecuting them. 

All of this has led some bettors to view prediction markets as an insider trading free-for-all. This era is likely coming to an end, however, as recent incidents related to the U.S. military appear to have come as a tipping point—finally rousing everyone from Congress to regulators to the companies themselves to call for oversight.

A mounting storm

In February, the cofounder of Kalshi took to X to post an expletive followed by “and find out.” The salty tweet coincided with an announcement that Kalshi had fined a user on the grounds he had traded on inside information obtained while working for MrBeast.

Kalshi also revealed that it was investigating other potential insider trading incidents, based on tips and on situations where a user’s betting patterns appeared suspicious.

In late March, the company announced “new technological guardrails that preemptively block politicians, athletes, and other relevant people from trading in certain politics and sports markets.”

The moves appear, on one hand, to be an attempt by Kalshi to position itself as more compliance-focused than archrival Polymarket, which withdrew from the U.S. in 2022 after running afoul of the Commodity Futures Trading Commission. (Polymarket has since acquired a licensed U.S.-based firm that will allow it to reenter the country.)

For its part, Polymarket in late March published “enhanced market integrity rules” to prevent insider trading, pointing to three forms of forbidden behavior: trading on stolen confidential information; trading on illegal tips; and wagering by those in a position to shape the outcome of a bet.

All of these announcements coincide with lawmakers and regulators, who initially appeared caught flat-footed by the sudden rise of prediction markets, recently vowing to take action against insider trading.

This response included a speech on Tuesday by the CFTC’s new director of enforcement, who stated: “There is a myth in the mainstream media and social media that insider trading law doesn’t apply in the prediction markets. That is wrong … We will aggressively detect, investigate, and, where appropriate, prosecute insider trading in the prediction markets.”

Meanwhile, the Justice Department is reportedly investigating trades related to the capture of the Venezuelan president. While not commenting on specific wagers, a spokesperson for the agency told CNN that a series of existing laws—including those related to insider trading, anti-money-laundering laws, marketing manipulation and fraud—applied to a “wide range of observed activity.” 

The recent controversies over insider trading have also led over 40 Democrats in the House and Senate, organized by Sen. Elizabeth Warren (D-Mass.), to send a letter to top regulators and ethics officials asking for training on how prediction markets operate. 

Republicans have so far remained largely quiet on the issue. White House spokesman Kush Desai recently declared: “All federal employees are subject to government ethics guidelines that prohibit the use of nonpublic information for financial benefit,” but dismissed any allegations of administration members placing improper bets as baseless.