Getting Ahead of Insider Trading in Prediction Markets

Odds are, if you have employees, they may be trading in prediction or mention markets based on things they learned confidentially at work. As seen in recent parallel charges by the U.S. Attorney's Office for the Southern District of New York (SDNY) and the Commodity Futures Trading Commission (CFTC), this conduct can lead to your employees becoming subject to serious law enforcement investigations or prosecutions even if your company is not in the traditional regulated financial space. The range of topics that are covered by event contracts on prediction markets is extremely broad and includes culture, sports, elections, and companies across all industries. For example, contracts are offered on topics such as "will XYZ Car Company release ABC type car before December 31, 2026?"; "what will be the top show on XYZ streaming platform/channel this week?"; "what will the announcers/host/CEO say during XYZ game/show/podcast/earnings call?"; and "when will company X merge with company Y?" Regardless of what industry you are in, it is time to update policies and conduct trainings to get the message out to employees and contractors that they should not use information learned at work to trade on these markets for their own advantage or help others to do so.

On April 23, 2026, the SDNY unsealed an indictment charging U.S. Army soldier Gannon Van Dyke with insider trading violations for purchasing $33,000 of "yes" shares on Maduro- and Venezuela-related markets based on classified nonpublic information on the President invoking War Powers against Venezuela and the impending operation to capture Venezuelan President Nicolás Maduro. Van Dyke knew about the planned capture and earned $409,881 in profits by misappropriating extremely sensitive, nonpublic, classified information regarding U.S. military operations and committing commodities and wire fraud through "clear insider trading" as the government described it. The CFTC filed parallel charges on the same theories and violations of commodities laws. 

The prosecution of Van Dyke for this conduct, while new, is not surprising. KalshiEX also recently issued notices of disciplinary actions involving similar conduct. Those include, in May 2025, a social media post containing videos that showed a political candidate trading on his own candidacy. Another, in August and September 2025, involved an individual who traded an event contract related to a YouTube channel while acting as an editor over the content of the show. Kalshi imposed fines and suspensions from their exchange and also noted that the conduct could constitute violations of federal laws. Notably, Kalshi and other markets are likely to make referrals directly to law enforcement in instances where they find these violations. Indeed, immediately after Kalshi announced these disciplinary actions, the CFTC's Enforcement Division issued an Advisory on Enforcement Authority over Event Contracts asserting the CFTC's authority to police illegal trading practices, including misappropriation of material nonpublic information on prediction markets.

Director of CFTC Enforcement, David Miller, made comments on March 31, 2026, at NYU Law School specifically addressing this enforcement priority. He stated directly that "[u]nfortunately, 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." He spelled out that while there is ongoing litigation over whether event contracts are derivatives subject to CFTC antifraud provisions, his agency's "clear statutory reading" is that these contracts are swaps and that the Commodity Exchange Act's antifraud provisions apply with full force to them, citing Section 6(c)(1) and CFTC Regulation 180.1 as specifically prohibiting insider trading in prediction markets.

At the Securities Enforcement Forum in New York this year, held February 5, U.S. Attorney for the SDNY, Jay Clayton, outlined similar views. He was asked whether he anticipates prosecutions involving prediction markets and answered directly, "yes," noting further that when individuals conspire to influence the outcome of an event in order to profit the conduct is "plainly criminal." He elaborated, "[b]ecause it's a prediction market doesn't insulate you from fraud." In the Van Dyke prosecution, Clayton's office followed through on these words.

Chair Atkins at the SEC has also noted that the SEC has overlapping jurisdiction over prediction markets. Based on the approach from the CFTC and the DOJ, it is no stretch to foresee the SEC investigating and charging conduct where prediction markets resemble security-based swaps—for instance, stock-linked contracts, or event contracts tied to company-specific outcomes (e.g., earnings results, mergers).

Further guidance on insider trading may be forthcoming as the CFTC recently issued an advance notice of proposed rulemaking, which inter alia, sought comment on the ability to misuse insider information in prediction markets. Some of the comments submitted thus far support strong insider trading enforcement, the issuance of further guidance in this area, as well as the imposition of restrictions on insider participation in event contract trading.  

Next Steps

The bottom line is that, while the exact parameters of jurisdictional authority are still being determined (including through litigation), insider trading should be expected to be investigated by all of the typical regulators. Further, as Miller indicated in his remarks at NYU, there is a common misperception that this is not the case. That is a recipe for many employees to unknowingly find themselves facing serious law enforcement investigations when they place trades on a prediction market platform. Companies should carefully update their personal and securities trading policies, rules, and codes of conduct to specifically encompass trading on prediction markets, prohibit the misuse of confidential information when trading on prediction markets, and address employees' participation on such platforms. Companies should also consider the expansion of the scope of whom those rules should apply to, conduct trainings, and require periodic certifications confirming that employees have not traded on event contracts related to the company while possessing confidential information. Especially for companies with employees who work in editorial fields, they may learn confidential information routinely and not understand the implications of placing trades on novel forums. Or, they may fully know their conduct is bad—for instance directly influencing the "mention" markets by placing particular words in a post, earnings call script, speech, or podcast—but they may not understand that it may be criminally punishable and how severe the consequences can be.

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The authors—Barry O'Connell, Elizabeth Lan Davis, and Jonathan Engel have held roles across the CFTC, SEC, DOJ, and state attorneys general offices and Alexandra "Zandi" Marinzel is a recognized longtime white collar defense attorney. For questions or additional insights, please reach out to the authors or another member of Davis Wright Tremaine's financial services team and sign up for our alerts.