By: Joel Yoder
The specter of insider trading looms large over prediction markets. Prediction markets are “a platform where people can bet on the outcome of future events. By buying and selling shares in the outcomes, participants collectively forecast the likelihood of events such as sports results, political elections, or entertainment awards.”[1] The market prices, most often between one cent and ninety-nine cents, roughly reflect the probability that the event will happen.[2]
Prediction markets have become enormously popular—Kalshi hosted over $1 billion in trades during the Superbowl this year.[3] But it is unclear how prediction markets fit into regulatory schemes across the U.S. There are over twenty current lawsuits against prediction markets by states alleging that they are illegal sportsbooks.[4] In response, the CFTC chair, Mike Selig, strongly asserted the federal agency’s intent to “defend its exclusive jurisdiction over these derivative markets” in court.[5] While these cases are litigated, the uncertain legal status of prediction markets presents unique opportunities to profit off of otherwise impermissible activities.
For example, an individual bet big on Maduro’s capture shortly before it happened, earning this person $400,000 on a prediction market.[6] It is unclear whether this individual misappropriated non-public information, but the bet was otherwise statistically unlikely.[7] This transaction would not have been possible in a more traditional betting context, where there are clear regulatory protections against using insider information.[8]
Similarly, another Polymarket user correctly predicted twenty-three out of twenty-four of the Google’s 2025 Year in Searches rankings and won over $1 million dollars.[9] Just a month before, the same user won $150,000 by correctly predicting the exact release date of the Google Gemini 3.0.[10] Moreover, another individual used a stopwatch to time Super Bowl national anthem rehearsals to accurately predict its actual length, earning him thousands of dollars on a prediction market.[11] Countless other event contracts using insider information may be occurring without being reported in the news.
Insider trading risks exposing confidential and non-public information. It also undermines confidence in fair competition in professional sports leagues and in the markets themselves.[12] The informational value of these markets can be undermined by malignant actors.[13] Consequently, many state and federal laws aim to prevent insider trading.
By contrast, Polymarket has argued that insider trading can be a desirable outcome in prediction markets.[14] In its view, prediction markets fundamentally serve informational purposes like newspapers; the markets represent an accumulation of public knowledge reflected in the prices.[15]
In any event, the CFTC argues that it already regulates prediction markets because they are considered swaps and financial derivatives under the Commodity Exchange Act.[16] Under 7 U.S.C. § 13(e)(1), members and employees of registered entities like commodities futures exchanges are prohibited from using “any material nonpublic information obtained through special access related to the performance of such duties.” This provides limited protection against insider trading. Unfortunately, this exception does not cover all potential parties who may perpetrate insider trading, only those who receive information from employees of registered entities.
The “Eddie Murphy” Rule, named after the actor in the movie Trading Places, provides additional protection against insider trading.[17] The federal regulation any person from engaging in fraud in connection with future swaps.[18] Unfortunately, the CFTC’s Division of Enforcement only filed eleven enforcement actions in 2025 and is constrained by limited funding and staffing.[19]
Federal wire fraud statutes offer another source of protection against insider trading in prediction markets. The broad language of these statute captures all wire transfers made in furtherance of “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.”[20] This statute has been used to prosecute insider trading in professional sports and may be similarly useful in prediction markets.[21]
The CFTC may also promulgate new regulations, and Congress may make new laws to govern insider trading in prediction markets. Both have demonstrated an interest in doing so.[22] In the meantime, the public relies on prediction markets to self-regulate. What happens next is anyone’s best guess.
[1] What is a Prediction Market?, Polymarket, https://help.polymarket.com/en/articles/13364272-what-is-a-prediction-market (last visited Feb 18, 2026).
[2] See id.
[3] Laya Neelakandan, Kalshi says Super Bowl trading volume surpassed $1 billion, (Feb. 10, 2026, at 09:34 EST) https://www.cnbc.com/2026/02/10/kalshi-super-bowl.html.
[4] Anna Betts, Surging prediction markets face legal backlash in US: ‘Lines have been blurred’, The Guardian (Feb. 17, 2026, at 07:00 EST), https://www.theguardian.com/business/2026/feb/17/us-prediction-markets-lawsuits-kalshi-polymarket.
[5] CFTC Reaffirms Exclusive Jurisdiction over Prediction Markets in U.S. Circuit Court Filing, CFTC (Feb. 17, 2026), https://www.cftc.gov/PressRoom/PressReleases/9183-26 [hereinafter CFTC].
[6] Wyatte Grantham-Philips, $400,000 payout after Maduro’s capture put prediction markets in the spotlight. Here’s how they work, PBS (Jan. 12, 2026, at 17:21 EST), https://www.pbs.org/newshour/nation/a-400000-payout-after-maduros-capture-put-prediction-markets-in-the-spotlight-heres-how-they-work.
[7] See id.
[8] Employee “Betting” in Prediction Markets: New Risks for Insider Trading and Proprietary Information Disclosure, SCCE (Jan. 21, 2026),https://complianceandethics.org/employee-betting-in-prediction-markets-new-risks-for-insider-trading-and-proprietary-information-disclosure/.
[9] Boaz Sobrado, Alleged Insider Nets $1 Million On Polymarket In 24 Hours, Forbes (Dec. 12, 2025, at 10:51 EST), https://www.forbes.com/sites/boazsobrado/2025/12/04/alleged-insider-nets-1-million-on-polymarket-in-24-hours/.
[10] Id.
[11] Bobby Allyn, TV antennas and Super Bowl rehearsals: How prediction market traders seek an edge, NPR (Feb. 17, 2026, at 05:00 ET), https://www.npr.org/2026/02/17/nx-s1-5716224/kalshi-polymarket-super-bowl-alpha.
[12] Neal Rothschild, Integrity’s moment of peril, Axios (Feb. 16, 2026), https://www.axios.com/2026/02/16/prediction-markets-insider-trading-integrity.
[13] Matthew Wein, Weaponizing the odds: Prediction markets as a new vector for foreign influence, Atlantic Council (Feb. 17, 2026, at 13:09 ET), https://www.atlanticcouncil.org/dispatches/weaponizing-the-odds-prediction-markets-as-a-new-vector-for-foreign-influence/.
[14] Alicia Park, Why Prediction Markets Need Insider Trading, Forbes (Jan. 9, 2026, at 11:13 EST), https://www.forbes.com/sites/aliciapark/2026/01/09/why-prediction-markets-need-insider-trading-according-to-their-godfather/.
[15] Id.
[16] CFTC, supra note 5
[17] Peter I. Altman et al., The ‘Eddie Murphy Rule’ Earns Its Moniker: The CFTC Brings a Classic Insider Trading Case, Akin, https://www.akingump.com/en/insights/alerts/the-eddie-murphy-rule-earns-its-moniker-the-cftc-brings-a-classic-insider-trading-case#:~:text=The%20Eddie%20Murphy%20Rule%2C%20or%20Rule%20180.1%2C,under%20the%20Securities%20Exchange%20Act%20of%201934.
[18] See 17 CFR § 180.1.
[19] Altman, supra note 18.
[20] 18 U.S. Code § 1343.
[21] Federal Agencies Signal Renewed Focus on Prediction Markets, JD Supra (Feb. 16, 2026), https://www.jdsupra.com/legalnews/federal-agencies-signal-renewed-focus-4348379/.
[22] See id.; see In Response to Suspicious Polymarket Trade Preceding Maduro Operation, Rep. Ritchie Torres Introduces Legislation to Crack Down on Insider Trading on Prediction Markets, Ritchie Torres (Jan. 9, 2026), https://ritchietorres.house.gov/posts/in-response-to-suspicious-polymarket-trade-preceding-maduro-operation-rep-ritchie-torres-introduces-legislation-to-crack-down-on-insider-trading-on-prediction-markets.
