Prediction Market Insider Trading: US Authorities Expand Major Investigations

The world of prediction markets, where users wager on the outcome of real-world events, is facing a legal earthquake. Federal prosecutors in Manhattan and Washington, D.C., along with the Commodity Futures Trading Commission (CFTC), are preparing new charges related to insider trading. While these markets were long considered a niche for crypto enthusiasts, the massive trading volumes seen during geopolitical crises and elections have caught the attention of top-tier law enforcement. The investigations no longer focus on isolated incidents but on systematic exploitation of official secrets.

The new cases are particularly explosive as they lead directly into the heart of national security structures. One US service member is suspected of profiting over $1 million on the Polymarket platform by betting on military strikes in Iran and Venezuela. Since such contracts are prohibited on US-regulated platforms like Kalshi, the suspect apparently bypassed restrictions to use Polymarket's international platform, which is officially unavailable to US residents. This raises urgent questions about the effectiveness of geofencing and the control mechanisms of these providers.

Numbers and facts

The scale of the alleged crimes is significant. In the case of Google software engineer Michele Spagnuolo, prosecutors allege he earned approximately $1.2 million by trading contracts tied to Google's most-searched people of 2025. Another case involves US Army soldier Gannon Ken Van Dyke, who allegedly profited over $400,000 using classified information about the potential ouster of Venezuelan President Nicolás Maduro. The political sector is also affected: Gabriel Perez, a former White House teleprompter operator, allegedly used advance knowledge of Donald Trump's speeches to trade over $100,000 in Kalshi contracts.

"Polymarket has become an illicit market to sell and exploit national security secrets unlike any in history." - Richard Blumenthal, Connecticut Senator

Beyond military secrets, corporate data is coming into focus. An employee at the accounting firm KPMG is under investigation for allegedly using non-public information to bet on whether a specific company would beat analyst earnings estimates. Authorities are examining whether classic anti-fraud laws applicable to stock markets can be applied to event bets. Defense attorneys for those already charged dispute this, arguing that these contracts do not legally qualify as swaps or traditional financial derivatives.

Background

The rise of platforms like Polymarket and Kalshi has ushered in a new era of wagering. While Kalshi is registered in the US and subject to strict oversight, Polymarket operates primarily in the crypto space and is officially blocked for US users. However, investigations show that insiders find ways to circumvent these blocks. The problem is exacerbated by the speed of these markets. For instance, former Congressman George Santos allegedly wagered on his own appearance at a State of the Union address while simultaneously posting misleading information on social media.

The legal debate centers largely on the Commodity Exchange Act. Prosecutors must prove that prediction contracts can be classified as commodities or swaps to prosecute insider trading. If courts accept defense arguments that these bets are merely private contracts unrelated to traditional commodity trading, it could collapse the entire US regulatory strategy. This would pave the way for even stricter specific legislation by Congress, as already demanded by representatives like Ritchie Torres.

Why it matters for German players

For German players, the situation is clear but restrictive. Prediction markets like Polymarket or Kalshi do not hold a license from the Joint Gambling Authority of the States (GGL). According to the Interstate Treaty on Gambling 2021 (GlüStV 2021), only sports betting and specific casino games that meet strict requirements are permitted in Germany. These include a monthly deposit limit of 1,000 euros across all providers and a 1 euro stake limit per spin for virtual slots. Bets on political events or military operations are generally not classified as permittable gambling under German law and are therefore illegal.

Anyone participating in such platforms from Germany is operating in a legal gray area or directly violating the prohibition on participating in unauthorized gambling. Furthermore, these platforms offer no protection through the LUGAS monitoring system or the OASIS player blocking file. The current fraud cases in the US also highlight the enormous risk for private investors in these markets: when insiders already know the outcome of bets through exclusive knowledge, regular players have no fair chance of winning. German players should therefore exclusively use providers listed on the official GGL whitelist to ensure legal certainty and player protection.

What it means for GGL-licensed casinos

Licensed German providers must monitor these developments closely as they impact the reputation of the entire digital wagering industry. While GGL casinos and betting providers are regulated through strict identity checks (KYC) and anti-money laundering measures, unregulated prediction markets often draw negative headlines that could lead to calls for even harsher legislation. For German operators, this means they should highlight their compliance standards as a mark of quality. The integrity of the game, currently being questioned in prediction markets, is secured in Germany through state oversight and technical data transmission to LUGAS.