Prediction Markets and Insider Trading

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, military operations, drug approvals, consumer safety, and virtually every other sector of the U.S. economy. 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 training 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.

Recent Landmark Enforcement Actions for Insider Trading

Recent enforcement actions by the U.S. Attorney's Office for the SDNY and the CFTC highlight growing scrutiny of insider trading on prediction market platforms. The cases underscore that employees who trade event‑based contracts using confidential information obtained through their work may face significant civil and criminal exposure—even if their employers operate outside the traditional financial sector and thus that there is a growing need for companies across industries to address this conduct in policies and procedures.

On May 27, 2026, authorities charged a Google software engineer with civil violations of the Commodities Exchange Act and CFTC regulations, as well as criminal charges of commodities fraud, wire fraud, and money laundering in connection with trades placed on the prediction market platform. According to charges filed by the U.S. Attorney's Office for the Southern District of New York and the complaint filed by the CFTC, the employee accessed internal Google tools that provided him with access to confidential, nonpublic data showing anticipated results for Google's 2025 "Year in Search" rankings and used that nonpublic information to trade more than 20 event contracts tied to those rankings before the rankings were publicly released. The trader—using the account name "AlphaRaccoon"—allegedly placed trades between October and December 2025 with near‑perfect accuracy and generated approximately $1.2 million in profits. Investigators further allege that the account was funded and paid out through cryptocurrency wallets linked to the defendant and that steps were taken to obscure the source and ownership of the proceeds.

The CFTC's complaint alleges civil violations of Section 6(c)(1) of the Commodity Exchange Act and CFTC Regulation 180.1, asserting that the event contracts at issue qualify as "swaps" because their value depends on the occurrence or non‑occurrence of future events with economic consequences. The agency seeks injunctive relief, disgorgement, restitution, civil monetary penalties, and trading bans. In parallel, the Department of Justice criminally charged the software engineer with commodities fraud, wire fraud, and money laundering.

These actions come amid broader regulatory attention to prediction markets. Earlier this year, the SDNY unsealed an indictment charging U.S. Army soldier with insider trading‑type offenses for allegedly placing prediction market bets based on classified information about a planned military operation in Venezuela. Regulators and exchanges have also taken disciplinary actions in situations where individuals traded event contracts tied to information they controlled or learned through their roles, including political campaigns and media production.

The prosecutions of the soldier and software developer, while new, are not surprising. One platform 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. Fines and suspensions were imposed by the exchange. Immediately after the platform announced these disciplinary actions, the CFTC's 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.

Regulators have signaled that enforcement in this area will likely continue. CFTC Enforcement Director David Miller has stated that the belief that insider trading rules do not apply to prediction markets is a "myth," emphasizing the agency's view that event contracts are derivatives subject to the Commodity Exchange Act's anti‑fraud provisions. Miller also recently emphasized that the CFTC is committed to "rooting out insider trading and promoting market integrity in prediction markets." SDNY U.S. Attorney Jay Clayton has similarly noted that fraud or manipulation in prediction markets "is plainly criminal," and the SEC has suggested it may assert overlapping jurisdiction where contracts resemble securities‑based swaps or relate to company‑specific events. In other words, the authorities are making clear that these kinds of actions are only just beginning and will be priorities during their administration.

What Steps Companies Can Take Now

Because prediction markets allow trading on outcomes across a wide range of topics—including corporate announcements, product launches, entertainment programming, and political events—companies across industries may face risk if employees trade using confidential information learned at work.

Without a doubt, companies should review and update existing insider trading, personal trading, and confidentiality policies, as well as codes of conduct and conflicts of interest policies as well as executive and key personnel employment agreements, to address prediction market participation to make clear that employees and contractors may not use nonpublic information obtained through their work to trade event contracts or assist others in doing so. In tailoring an appropriate policy, companies should consider regularly searching prediction market platforms for event contracts that relate to their respective companies and the products or services that are offered.  Areas that companies should consider addressing include:

• Defining the term "material nonpublic information" to explicitly include facts relevant to event contracts relating to the company;
• Prohibit employees from trading event contracts on subjects connected to their employer or role-based knowledge—not just company stock;
• Make clear that prediction market trading on confidential information learned at work constitutes a breach of the employee's duty of loyalty and presents a conflict of interest under the company's employment agreements, code of conduct, conflict of interest, and other company policies;
• Extend existing blackout period and pre-clearing procedures to cover prediction market platforms;
• Require disclosure of prediction-market accounts for employees in sensitive roles (i.e., research and development, finance, legal, regulatory affairs, communications) and consider implementing information barriers.
• Extend recusal procedures to cover situations where an employee's role intersects with a publicly tradeable event contract, similar to existing recusal practices for financial conflicts or vendor relationships;
• Require periodic (not just onboarding) certification that employees have reviewed and remain in compliance with these provisions, tied to the same cadence as other conflicts-of-interest disclosures; and
• Build a reporting channel for suspected violations and align it with the company's existing internal investigation protocol. Companies should ensure existing hotlines and ethics reporting channels explicitly cover suspected prediction-market misuse of confidential information, not just traditional insider trading or financial misconduct, and confirm employees know these channels apply to this conduct.

Additionally, training updating employees and compliance personnel regarding these policy revisions should also be conducted as well as requiring periodic certifications that employees have not traded on event contracts related to the company while possessing confidential information. Annual compliance training should also be refreshed to directly address the "it's just a betting app" misconception, using real enforcement examples.

Conclusion

Prediction markets are experiencing rapid expansion and projected to reach $1 trillion in annual trading volume by the year 2030. While these markets currently lean heavily toward sports-related event contracts, the platforms are maturing, becoming more institutionalized, and expanding beyond sports. Accordingly, companies across all industries, not just those in the traditional finance space, need to take heed of these platforms and proactively and update their personnel agreements, policies and procedures accordingly.

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Elizabeth Davis is a partner in DWT's Washington, D.C., office; Barry O'Connell is a partner in the firm's New York office; Jeremy Merkelson; is a partner in the Washington, D.C., office; and Ben Gipson is a partner in the Los Angeles office. For any questions, please contact the authors or another member of DWT's financial services or employment teams. To stay informed, sign up for our alerts.