Anyone who thought prediction markets existed outside the reach of insider trading laws might have just gotten a direct correction from the person most likely to prosecute them.
David Miller, the CFTC’s enforcement director and a former federal prosecutor appointed to the role just last month, spoke at a panel at New York University Tuesday and didn’t mince words. “We are aware of the speculation about insider trading,” he said. “We are watching.”
He went on to address something he called a “myth,” the idea, apparently common enough on social media and in press coverage, that prediction markets are somehow exempt from insider trading rules. “That is wrong,” he said flatly.
The legal classification question has been hovering over this industry for a while now, and Miller gave his answer, noting: “Our position is that event contracts are not gaming. The event contracts at issue are swaps. Insider trading law applies.” Calling them swaps rather than gambling puts them firmly under CFTC jurisdiction, and under the same legal framework that governs the broader derivatives market.
Miller also gave some sense of how the agency plans to prioritize. They won’t be chasing small fry. The focus will be on cases where someone traded on, or tipped others with information they had no business sharing. Misappropriated information, in legal terms. The kind of thing that in any other financial market would already have someone looking at serious consequences.
Why this warning landed now
None of this is happening in a vacuum. Over the past few months, a string of trades on prediction markets have raised genuine alarm, some placed right before major US military decisions, others ahead of announcements that very few people outside of government would have known about.
Around the time of the US-Israeli strike on Iran in February, suspected insiders were estimated to have cleared over a million dollars. An anonymous trader made more than $400,000 on a bet tied to the capture of Venezuelan leader Nicolás Maduro. There were also trades linked to speculation about when senior government officials were about to be fired.
The pressure has been building in Congress too. On March 29, Senator Elizabeth Warren and 41 co-signers wrote to CFTC Chairman Michael Selig demanding government-wide guidance telling federal employees to stay away from prediction markets when they’re sitting on non-public information.
Their argument was that the STOCK Act, the law that bars government workers from using information gained through their official duties for personal financial gain in futures, options or swaps, already covers this. No new law needed. Just enforcement of what’s already on the books.
The platforms have also been scrambling to get ahead of it. Both Kalshi and Polymarket rolled out new insider trading policies in late March. Polymarket banned trades made on confidential information or in breach of a duty of trust. Kalshi went further and introduced specific restrictions on politicians betting on their own campaigns and athletes wagering on their own competitions.
The enforcement question still has no easy answer
Here’s the honest complication though: none of this has actually been tested in court yet. No federal criminal prosecution, no CFTC civil case, nothing. A former enforcement director at the agency, now working as a defense lawyer, said prosecutors would need to prove not just that someone traded on non-public information, but that doing so violated a specific duty of trust.
That standard is untested here, and the trades that happened on platforms outside the US make it even harder to pursue. The CFTC is also still in the middle of building the rulebook.
It issued an Advance Notice of Proposed Rulemaking in March seeking public input on how prediction markets should be regulated, with comments due April 30. So in a sense, Miller’s warning is running ahead of the formal rules it’s meant to back up. Still, the direction is clear. The CFTC isn’t treating prediction markets as a grey zone anymore, and anyone still betting on that assumption may want to reconsider.