Insider Trading Meets Prediction Markets: Six Steps Every Market Participant Should Take Now

MVA Attorneys Published in TRADERS Magazine on Prediction Markets and Insider Trading Risk

The enforcement landscape for prediction markets has shifted dramatically. In just five weeks, the Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) brought parallel civil and criminal insider trading cases against two individuals who traded event contracts on Polymarket, a prediction marketplace. These first actions of their kind send a clear message: prediction markets are subject to the same anti-fraud regime governing traditional financial products.

At the heart of this shift is a growing jurisdictional clash. The CFTC treats event contracts as swaps, which places them under exclusive federal oversight through the Commodity Exchange Act (CEA). Individual states, however, increasingly view these same products as gambling subject to state laws.

For market participants, the message is unmistakable: no one with access to nonpublic information and a prediction market account is beyond enforcement reach. For platforms and firms, expectations are rising around transaction monitoring, trade surveillance, and financial crimes compliance, including anti-money laundering (AML) controls and suspicious activity report (SAR) filing obligations.

The Cases

On April 23, 2026, the CFTC and DOJ charged Gannon Ken Van Dyke, an active-duty U.S. Army Master Sergeant, with using classified intelligence about a military operation to capture former Venezuelan President Nicolás Maduro to purchase “Yes” shares on an event contract related to Maduro’s removal from office. Van Dyke allegedly generated over $400,000 in profits before the operation became public. Importantly, this case involves the CFTC’s first-ever use of the “Eddie Murphy Rule,” which prohibits trading on nonpublic government information for personal gain. The rule’s name comes from the 1983 film Trading Places, where Eddie Murphy’s character, Billy Ray Valentine, profits by trading on a stolen government crop report.

Then on May 27, 2026, the CFTC and DOJ charged Michele Spagnuolo, a Switzerland-based Google software engineer, with exploiting confidential information on Google’s 2025 “Year in Search” rankings, before they became public. Spagnuolo allegedly traded at least 23 event contracts with “near-perfect accuracy,” netting approximately $1.2 million in profits.

Both defendants face multiple felony counts carrying sentences of up to 20 years imprisonment and various civil consequences, including restitution, disgorgement, civil monetary penalties, trading and registration bans, and injunctive relief.

Significance and Broader Context

These actions did not emerge in isolation. First, earlier this year, CFTC Director of Enforcement David I. Miller and Jay Clayton, the U.S. Attorney for the Southern District of New York, the

jurisdiction where all of the actions were filed, signaled a clear enforcement priority: pursuit of insider trading in prediction markets, specifically where event contracts are traded using information obtained or used in violation of a legal duty, such as a nondisclosure agreement. Second, regulatory momentum has been building alongside that enforcement focus. On March 12, 2026, the CFTC issued its Advance Notice of Proposed Rulemaking seeking public comment on whether new or amended regulations are needed for event contracts traded on prediction markets. Third, pressure from Capitol Hill has intensified. Members of Congress have urged CFTC Chairman Michael Selig to tighten oversight of prediction markets, and last month, House Oversight Committee Chair James Comer (R-KY) reportedly launched an investigation into the potential misappropriation of insider information by traders on platforms like Polymarket and Kalshi.

At the same time, the CFTC has been moving aggressively on the litigation front. Since April 2026, the CFTC has filed or sought to intervene in lawsuits across the country, specifically, Arizona, Connecticut, Illinois, New York, Wisconsin, Rhode Island, and Minnesota, to reaffirm its purported exclusive jurisdiction over prediction markets. In particular, the Minnesota law at issue pushes the envelope by extending potential felony liability beyond prediction market traders to a wide range of market participants, including technology providers, financial institutions that handle funds, verification services, and even media organizations promoting these markets. In each action, the CFTC’s argument is that the CEA’s exclusive-jurisdiction provision, 7 U.S.C. § 2(a)(1)(A), preempts state criminal and gambling laws when applied to federally registered designated contract markets (DCM) offering event contracts.

Takeaways for Market Participants

Taken together, these enforcement actions, regulatory developments, and jurisdictional disputes have real, immediate implications across the prediction market ecosystem, from individual traders to the platforms and institutions that support event contract activity.

1. Prediction markets are a top enforcement priority. The CFTC and DOJ view event contracts like any other regulated product, applying the same anti-fraud and insider-trading frameworks. The addition of parallel criminal cases raises the stakes significantly.

2. Information advantages face heightened scrutiny. Insider-trading liability in these cases turns on misappropriation of information where a duty of trust and confidence exists. Anyone with early, restricted, or asymmetric access to information should anticipate increased scrutiny, particularly where the information is tied to government action, sports performance, or operational outcomes where there is a clear expectation of confidentiality.

3. Compliance expectations are rising across the ecosystem. Prediction market platforms and regulated entities are expected to implement robust surveillance controls capable of detecting suspicious timing, unusual volume, or concentrated or outsized positions ahead of market-moving events. For institutions subject to the Bank Secrecy Act, surveillance findings may trigger SAR filing obligations.

4. Cross-border activity does not insulate against U.S. jurisdiction. The Spagnuolo case affirms that U.S. regulators are willing to assert jurisdiction wherever there is a meaningful U.S. nexus, including U.S.-based platforms or users, regardless of where the purported bad-actor is located.

5. Closely monitor the state-federal jurisdictional conflict. Expansive state laws, such as Minnesota’s new law extending felony liability beyond the platforms themselves, highlights the growing tension over how prediction markets should be regulated. Until that conflict is resolved, companies must carefully assess exposure to both federal oversight and overlapping state laws.

6. Policies and training need to catch up. Organizations with employees who have access to nonpublic information should revisit their insider trading policies to ensure they address prediction market trading risks and refresh compliance training accordingly.

For traders, compliance officers, and institutions operating in this rapidly evolving space, the time to reassess policies, surveillance infrastructure, and risk exposure is now, before the next enforcement action names your client, your firm, or your platform.

Originally published in TRADERS Magazine, June 8, 2026

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