Prediction Market Prosecutions May Be Curbed by Decades-Old Case

Federal prosecutors and regulators have announced their intent to police insider trading in prediction markets. But enforcement under the Commodity Exchange Act will require the government to navigate complex factual and legal issues that aren’t necessarily present in other markets.

To avoid those issues, prosecutors targeting on prediction markets may decide to bring charges of insider trading under wire fraud theories, relying on violations of the markets’ user agreements and terms of use to prove the fraud.

Depending on the language in prediction markets’ user agreements and terms of service and the timing of users’ execution, however, prosecutors may find that charging insider trading as wire fraud is constrained by a decade-old ruling that strictly limited fraud theories arising from a breach of contract.

CEA Limitations

While insider trading may be prosecuted criminally and civilly under the CEA, there are open questions about if and how that framework applies to prediction markets. These markets and the Commodity Futures Trading Commission have argued that event contracts are within the CFTC’s jurisdiction, but courts have reached different conclusions.

The elements of insider trading under the CEA—misappropriation of material non-public information in violation of a preexisting duty—present difficult proof issues. In the context of an event contract based on the outcome of a sporting event, what information is material? When is information non-public? Under what circumstances does a duty arise?

Criminal prosecutors might navigate these issues by charging insider trading as wire fraud. In US v. Earnest and US v. Clase de law Cruz, filed in October and November 2025, respectively, prosecutors brought wire fraud charges against professional athletes and bettors arising from the use of non-public information to place bets in traditional sportsbooks.

In each case, prosecutors alleged that the defendants engaged in fraud by falsely agreeing to the sportsbooks’ terms of use, which prohibited users from placing bets if they had access to non-public information.

Countrywide’s Implications

Wire fraud theories based on a breach of contract are subject to an important limitation set forth in the seminal 2016 decision in US ex rel. O’Donnell v. Countrywide Home Loans, in which the government alleged that Countrywide committed wire fraud by intentionally selling poor-quality mortgages to government-sponsored entities in violation of contracts that required the mortgages to be investment quality.

The government argued that Countrywide intended to defraud the purchasers because it knew at the time of sale that the mortgages were not investment quality. The company argued that its contractual breaches didn’t amount to actionable fraud.

The court held that a contractual promise may be deemed fraudulent only if the promisor never intended to perform. If a promisor initially intends to perform under a contract but later commits an intentional breach, that conduct is a breach of contract only, and not fraud.

Because the government had offered no evidence of fraudulent intent at the time the contracts were executed, the court directed entry of judgment in favor of Countrywide.

Countrywide has important implications for wire fraud prosecutions relating to alleged insider trading on prediction markets. The viability of such cases will likely depend on the specific language of the user agreements and terms of use, the representations contained therein, and the defendant’s state of mind at the time the representations are made.

User agreements across sportsbooks and prediction markets vary widely, and the Countrywide analysis must be performed with respect to the specific language of the agreement on each platform in question. Some agreements may support a viable wire fraud case, while others may not.

Some platforms, for example, require users to agree only at the time of registration that the user will abide by the terms of use and will not place bets based on confidential information. This type of agreement presents issues analogous to Countrywide. If a user lacks fraudulent intent at the time of registration, then any subsequent violation of the terms of use—even an intentional one—wouldn’t support a wire fraud charge.

Other platforms’ user agreements, in contrast, require users to represent every time they place a bet that they are complying with the terms of use, including terms prohibiting trades based on confidential information. Prosecutors could argue that such agreements solve the Countrywide problem because a user’s fraudulent intent may be assessed at the time each bet is placed.

Such agreements could be a better fit for a wire fraud theory of insider trading, although the government may still encounter challenges in proving criminal intent beyond a reasonable doubt based on boilerplate text that many users don’t carefully review.

Looking Ahead

If prosecutors rely on a prediction market’s user agreements and terms of use to support wire fraud charges, defense counsel should carefully examine the contracts at issue to assess whether the government’s fraud theory passes muster under Countrywide in the first instance.

To take one example, the wire fraud charges in Earnest and Clase may be vulnerable to legal challenges depending on the specific user agreements at issue. Likewise, prediction markets may want to evaluate their terms of use to assess whether they appropriately deter trading on the platform deemed to be unlawful.

And users should recognize that regulators are paying careful attention to their trades.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Katherine Goldstein is co-head of Akin’s white collar defense and government investigations practice.

Jack Murphy is a white collar defense and government investigations senior counsel at Akin.

Will Bernstein is a litigation law clerk at Akin.

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