Prediction Markets Insider Trading a Wakeup Call for Companies

Although the question of who has jurisdiction over prediction markets is unsettled, both the Commodity Futures Trading Commission and the Justice Department have said they intend to pursue incidents of insider trading and manipulation on these platforms. While public companies and financial industry entities have dealt with the risk of insider trading for decades, this threat from prediction markets is new.

As these platforms continue to grow and come under scrutiny, employers across all industries face mounting risk of distracting investigations, potential liability, and bad PR. Implementing a strong compliance framework will demonstrate good faith in the event of imputed liability and will proactively shield the company from exposure altogether.

Platforms such as Kalshi and Polymarket allow users to trade based on the outcome of real-world events. Users buy and sell binary “event contracts” tied to users’ assessment of the probability of whether something will happen in the future. Enormous payouts to users have caught the attention of regulators, members of Congress, and prosecutors who rightly believe that prediction markets users are making windfalls trading on insider or confidential information.

In June 2025, for example, a Polymarket user with the handle ricosuave666 profited roughly $155,000 after accurately predicting events during Israel’s 12-day war with Iran. A few months later, the user AlphaRaccoon profited $1.1 million after placing bets on how certain terms would rank in Google’s Year in Search. Other users have made hundreds of thousands of dollars successfully predicting events and outcomes.

Misappropriation of material nonpublic information, or MNPI, is a fundamental element of federal liability for insider trading. But employees and employers may not realize that when it comes to betting on prediction market platforms, MNPI can come in nearly limitless forms.

Misappropriated MNPI is no longer limited to information used to purchase or sell shares in a publicly traded company. Now, nearly all confidential information available to an employee that they then use to inform their bets on a prediction market could constitute misappropriation. In years past, a leak about the Oscar winner for best supporting actress could be a public embarrassment, but now it could be a federal crime, if the leak came from a firm tasked with maintaining secrecy over Oscar winners.

Litigation regarding the scope of “material” and “nonpublic” information as it relates to prediction markets is likely, but the government has taken a broad view on the issue. The DOJ last month unsealed the indictment of a US Army master sergeant accused of profiting off a US military operation to apprehend former Venezuelan President Nicolás Maduro, charging the sergeant with wire fraud and alleging that his bets on prediction markets were enabled by criminal misappropriation of MNPI.

In the financial industry, broker-dealers and other Securities and Exchange Commission-regulated firms can face civil liability for their employees’ insider trading under “failure to supervise” provisions. While there is no general “failure to supervise” law outside of the securities context, it doesn’t require unbounded imagination to envision an aggressive federal or state regulator crafting a theory of liability for employers.

Insider trading by a company’s employees can lead to significant legal costs, distracting investigations, and a public relations nightmare. This is why financial institutions have spent years carefully crafting frameworks for employee compliance to prevent insider trading and market manipulation. With prediction markets’ skyrocketing popularity, all companies should be just as concerned about compliance.

Nonfinancial institutions now have a novel source of risk that they may not be equipped to handle. Each touchpoint an employee has with confidential information now creates the risk of the employee trading on it. This concern goes hand in hand with the broadening scope of MNPI and will affect companies that may not have had to worry about misappropriation before.

Because the CFTC and DOJ have indicated that this kind of misappropriation is a federal crime, employers will need to enact robust confidentiality compliance frameworks to protect themselves from distracting and costly investigations.

Companies should consider implementing specific policies to help prevent insider trading in prediction markets.

Monitoring, or even prohibiting, employees’ use of prediction markets. An employer could block access to prediction markets. It could also make employees sign certifications that they won’t use the platforms.

Revising internal policies and codes of conduct to set clear guidelines regarding permitted—and prohibited—use of prediction markets, including what constitutes MNPI. Codes of conduct could broadly define confidential information and prohibit any nonauthorized use of confidential information.

Minimizing widespread employee access to confidential information. Businesses could use information technology to segregate critical (and potentially profitable) information and make certain files password protected.

Implementing market monitoring tools to identify whether MNPI from your company is being used on prediction markets. Businesses could track prediction markets that are particularly germane to them, monitor for any signs that the market is being influenced by inside information, and investigate further as needed.

The movie “Wall Street” and the TV show “Billions” may have brought securities insider trading into the cultural zeitgeist, but the rise of Kalshi and Polymarket will lead to a broader view of insider trading that has the potential to harm any employer that possesses prediction-market-moving information. Companies that don’t implement protective measures quickly enough risk falling short on compliance—and could end up paying the price down the road.

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

David L. Axelrod is a former SEC supervisory trial counsel, former assistant US attorney, first-chair trial attorney, and partner at Ballard Spahr, where he leads the firm’s Securities Enforcement and Corporate Governance Litigation practice.

Grace Mezzanotte is an associate in Ballard Spahr’s commercial litigation and dispute resolution group who focuses on a range of business litigation and dispute resolution matters.

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