Prediction markets are trading venues on which participants buy and sell event contracts whose value turns on the occurrence or nonoccurrence of specified future events, such as elections, economic outcomes, or other measurable developments. When offered on a CFTC‑regulated designated contract market, these contracts are subject to the Commodity Exchange Act, CFTC regulations, and the exchange’s own market-integrity and participant-conduct rules. Both the CFTC and regulated prediction-market platforms are continuing to address market manipulation, misuse of confidential information, and related misconduct.[1]

One area in which the law and regulation of prediction markets continues to evolve is in “insider trading.” Deceptive misappropriation of information in breach of a duty, attempts to influence the event underlying a contract, or misleading statements that affect contract prices all could give rise to discipline, legal liability, or even criminal conviction. So could other actions, not independently prohibited by regulation, but in violation of a trading venue’s own rules.

Major prediction-market platforms include Kalshi, Polymarket, and Crypto.com. Publicly reported conduct by major prediction-market platforms indicates that some venues prohibit “insider trading”-like behavior more broadly than the CFTC or DOJ may be able to pursue as unlawful. Institutional and retail participants should therefore evaluate both the applicable legal framework and the specific rules of the venue on which they trade. Likewise, businesses offering, or considering offering, event contracts should adopt rules and investigation procedures that are calibrated to their products, participants, and market-integrity risks.

The inaugural CFTC Innovation Advisory Committee meeting     

The CFTC’s Innovation Advisory Committee is a federal advisory body that provides the Commission with advice and recommendations on complex issues at the intersection of technology, law, policy, and finance, including the effects of technological innovation on financial services, derivatives, and commodity markets.[2] The Innovation Advisory Committee met on August 20, 2026, for a three-hour inaugural session chaired by Walt Lukken, with opening and closing remarks from CFTC Chairman Michael S. Selig. The meeting considered three topics: crypto regulation, artificial intelligence in derivatives markets, and prediction markets.

The third session, “Prediction Markets: Innovation, Jurisdiction, and the Future of Event Contracts,” focused on the growth of event contracts as mechanisms for price discovery, information aggregation, and risk management. The Committee considered what a durable regulatory framework should require of exchanges, including exchange obligations, market surveillance, manipulation concerns, and the balance between innovation and public confidence.

The Regulatory Framework

In the securities context, “insider trading” generally refers to trading a security while aware of material nonpublic information in breach of a duty of trust or confidence owed to the issuer, its shareholders, or the source of the information. Although neither Section 10(b) of the Securities Exchange Act of 1934 nor SEC Rule 10b-5 uses the term “insider trading,” the Supreme Court has recognized liability under the classical and misappropriation theories where the trader’s use of such information is deceptive.[3]

Securities law also separately prohibits market manipulation, conduct intended to create an artificial price or false appearance of market activity, under Sections 9(a) and 10(b) of the Exchange Act. That distinct concept becomes important in prediction markets when a participant can influence the underlying event or disseminate misleading information to affect contract prices.

The laws and regulations governing commodities are, in this respect, less restrictive. The principal federal anti-fraud provision relevant to commodities transactions, including the purchase and sale of event contracts, is CFTC Rule 180.1. The rule prohibits intentionally or recklessly using a fraudulent or deceptive device, making a materially false or misleading statement or omission, or engaging in conduct that operates as a fraud or deceit in connection with a swap, a commodity transaction in interstate commerce, or a futures transaction.[4]

The Rule does not, however, establish a general duty to disclose all material nonpublic information. Rule 180.1(b) provides that a person need not disclose nonpublic information merely because it may be material to the market price, rate, or level of a commodity transaction, unless disclosure is needed to make an affirmative statement not misleading. [5]

That limitation distinguishes CFTC Rule 180.1 from a broad prohibition on trading while aware of material nonpublic information. The possession by a participant in a commodities or derivatives market of relevant proprietary or nonpublic information does not, by itself, establish unlawful fraud. Rather, as a general rule, the participant’s trading is unlawful only if the trader deceptively obtained or used confidential information in breach of a preexisting duty of trust and confidence owed to the information’s source.[6]

In prediction markets, “insider trading” may therefore describe at least two distinct risks:

• Informational risk: A participant uses confidential information obtained through a relationship that gives rise to a duty or other obligation to the information’s source.

• Structural risk: A participant trades on an event over which the participant has actual or potential influence. If the participant uses or attempts to use that influence to affect the event’s outcome, disseminates misleading information, or otherwise distorts the contract’s price, the conduct may raise separate market-manipulation concerns.[7]

The latter category may be prohibited by platform rules even if the participant did not misappropriate information from a third-party source and the facts do not support a conventional federal misappropriation or market-manipulation claim.

Exchange Rules May Reach Further Than Federal Law

Prediction-market platforms may impose trading restrictions that are broader than the CFTC’s misappropriation-based anti-fraud rule. Commentators have observed that some prediction-market exchanges have adopted a more expansive view of “insider trading” than CFTC regulation requires and that such rules may serve legitimate market-integrity and business purposes.[8]

For example, Kalshi’s published rules prohibit a participant from trading, directly or indirectly, on a contract if the participant has access to, or is in a position to access, material nonpublic information concerning the contract’s underlying event before that information becomes public, or if the participant can exert direct or indirect influence over the event’s outcome.[9] These restrictions address both forms of market-integrity risk discussed above: misuse of confidential information and trading by a person who can affect the outcome of the relevant contract.

The reported allegations involving Army Master Sergeant Gannon Ken Van Dyke present the clearest example of alleged misappropriation of confidential government information in the prediction-market context. The CFTC and the U.S. Attorney’s Office for the Southern District of New York alleged that Van Dyke used classified, nonpublic information concerning a U.S. operation to capture former Venezuelan President Nicolás Maduro to trade Polymarket event contracts. The CFTC alleged that Van Dyke acquired the information through his military position, owed duties of trust and confidentiality to the U.S. government and the American people, and used the information for personal trading that generated more than $400,000 in profits.[10] If true, the alleged conduct would constitute deceptive misappropriation of confidential government information for personal benefit. The CFTC brought a civil enforcement action, and the Justice Department brought parallel criminal charges.[11]

The CFTC’s settled action against former White House teleprompter operator Gabriel Perez provides a second example of alleged misuse of nonpublic government information in connection with a Kalshi event contract. The CFTC found that, from December 2025 through February 2026, Perez traded presidential “mention market” contracts tied to words or phrases that President Donald Trump might use in upcoming speeches while Perez had advance access to those speeches through his White House employment. The CFTC found that Perez misappropriated that information in breach of his duty of trust and confidence and generated $107,539.02 in profits. Perez settled the matter by agreeing to disgorge those profits, pay a $65,000 civil monetary penalty, cease and desist from further violations, and accept a three-year trading ban.[12] The Perez matter is a conventional information-misuse case: the trading advantage arose from confidential information accessed through employment.

The CFTC’s action involving former Representative George Santos illustrates a different risk: market manipulation. Santos traded Kalshi event contracts concerning whether he would attend the 2026 State of the Union address, an event over which he had control, and the CFTC found that he made misleading public statements designed to affect the contract’s price. Santos settled the CFTC matter, agreeing to disgorge $17,569.98, pay a $17,500 civil monetary penalty, and accept a three-year trading ban.[13] Kalshi subsequently imposed its own permanent platform ban and a separate $71,356 financial penalty.[14] Thus, although Kalshi characterized the conduct as violating its insider-trading and market-manipulation rules, the CFTC matter was resolved as an enforcement action for manipulative trading, rather than as a conventional confidential-information misappropriation case.

Kalshi’s action involving a candidate for Governor of California illustrates a platform-level conflict-of-interest restriction. Kalshi reported that the candidate traded approximately $200 on his own candidacy and later publicized the activity. According to Kalshi, the conduct violated multiple exchange rules, including the platform’s restrictions on trading in contracts when the trader can influence the underlying event. Kalshi announced that it froze the candidate’s account, investigated the activity, reported the matter to the CFTC, and imposed a five-year ban and a financial penalty equal to ten times the amount traded.[15] The rationale is straightforward: a candidate may follow an election market’s forecast, but trading on the candidate’s own race presents an actual or apparent conflict because the candidate can influence the event underlying the contract.

Finally, Kalshi’s action involving an editor for a popular YouTube creator illustrates a more novel use of platform surveillance. Kalshi reported that its surveillance systems flagged unusually accurate trading in low-probability markets tied to upcoming content from the creator. Kalshi stated that the trading pattern was statistically anomalous and that user tips also drew attention to the activity. Its investigation reportedly concluded that the trader was employed as an editor for the creator’s show and likely had access to material nonpublic information relevant to the contracts. Kalshi froze the account, reported the matter to the CFTC, and imposed a two-year suspension and a financial penalty equal to five times the amount traded.[16] This fact pattern more closely resembles a conventional information-misuse case because the trader’s alleged informational advantage arose through a relationship with the information source.

Internal Investigations and Related Litigation

As the last case indicates, prediction-market platforms report, and there is good reason to believe, that at least some of them surveil trading in certain markets, presumably using relatively sophisticated technology, to identify unusual and potentially unlawful activity. Kalshi and others conduct investigations, sometimes including interviews with market participants, and reserve the right to refer matters to the CFTC and DOJ.

Exchanges have asserted the rights to conduct, and do in fact conduct, their own investigations. A platform’s product rules, eligibility restrictions, surveillance systems, account-monitoring practices, and disciplinary authority may prohibit conduct that would not necessarily satisfy every element of a federal commodities-fraud claim. Based on their own market-integrity rules, prediction markets investigate and discipline suspected misconduct. Publicly reported actions demonstrate how exchanges can and do respond to suspicious activity through account freezes, internal investigations, financial penalties, suspensions, and permanent bans. Those measures may be available under the exchange’s rulebook even if the conduct does not independently establish a federal commodities-fraud or market‑manipulation violation. Kalshi also has reported referring significant matters to the CFTC, allowing the Commission to determine whether the conduct warrants a separate federal enforcement action.

Implications for Market Participants

For prediction-market companies, the central issues include contract design, participant eligibility, insider-trading and conflicts policies, information barriers, surveillance for anomalous trading, controls for indirect trading and related accounts, escalation procedures, and appropriate responses to suspected misconduct. The Committee itself identified product design, market surveillance, manipulation concerns, customer protection, and public confidence as essential elements of a durable framework.

For investigation targets and other counterparties, the analysis begins with the source and nature of the information. Was the information confidential and material to the relevant event contract? Did the trader owe a duty of trust, confidence, loyalty, or confidentiality to the information’s source? Was the trader acting for a principal with a genuine commercial exposure, or acting for personal benefit? Did the trader have the ability to influence the underlying event? And did the conduct violate the rules of the venue even if a federal misappropriation claim is uncertain?

As event contracts expand beyond elections and sports into corporate, commercial, and macroeconomic outcomes, the line between legitimate risk management and unlawful information misuse will become more consequential.

Thinking about the regulatory and compliance considerations for a prediction-market business?

Each platform’s path depends on the specifics: the structure of its event contracts, the markets and participants it serves, applicable federal and state requirements, and the controls it implements to address nonpublic information, conflicts of interest, market surveillance, and customer protection. Businesses offering or contemplating offering CFTC-registered prediction markets, or similar products, should consult with experienced legal counsel on product design (e.g., what contracts to offer) to maximize customer benefit and business success while minimizing the likelihood of illegal activity. Contact us to discuss a practical, sequenced approach to assessing your regulatory obligations from the start.

Taft’s FinTech Practice is composed of attorneys specializing in crypto and digital assets, blockchain, financial services, banking, securities, bankruptcy, government investigations, intellectual property, litigation, public policy, tax, technology, transactional, and regulatory issues that serve clients across the FinTech space.

 Have you been contacted by a surveillance or investigation department of Kalshi or another regulated exchange?

Taft’s attorneys have experience and can help. Taft’s Compliance, Investigations, and White Collar defense team has a depth of experience that is national in scope and prominence. Taft’s clients benefit from our extensive expertise defending both companies and individuals. We have represented clients in enforcement actions and investigations conducted by non- and quasi-governmental actors as well as the U.S. Department of Justice, Securities and Exchange Commission, Internal Revenue Service, and numerous other federal and state regulatory and disciplinary agencies. We also handle internal investigations and routinely assist clients with reviews and audits, corporate compliance initiatives, and training.

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[1] Richard B. Levin, Bobby Wenner, Jorge Castiblanco & Cristofer Kelman, Event Contracts, Gaming, and Who Governs Tomorrow, Glob. Legal Insights (2026), available at: https://www.globallegalinsights.com/practice-areas/fintech-laws-and-regulations/01-back-to-the-futures-event-contracts-gaming-and-who-governs-tomorrow/.

[2] Innovation Advisory Committee, Commodity Futures Trading Comm’n, available at: https://www.cftc.gov/About/AdvisoryCommittees/IAC; Chairman Selig Launches the CFTC Innovation Advisory Committee, Commodity Futures Trading Comm’n (Jan. 12, 2026), available at: https://www.cftc.gov/PressRoom/PressReleases/9167-26.

[3] Securities Exchange Act of 1934 § 10(b), 15 U.S.C. § 78j(b) (2018); 17 C.F.R. § 240.10b-5 (2026); 17 C.F.R. § 240.10b5-1(a) (2026); United States v. O’Hagan, 521 U.S. 642, 651–53 (1997); Chiarella v. United States, 445 U.S. 222, 228–35 (1980); Dirks v. SEC, 463 U.S. 646, 654–55 (1983).

[4] 17 C.F.R. § 180.1(a).

[5] 17 C.F.R. § 180.1(b) (2026); see also Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices and Prohibition on Price Manipulation, 76 Fed. Reg. 41,398, 41,404–05 (July 14, 2011) (explaining that Rule 180.1 does not impose a new affirmative duty of inquiry, diligence, or disclosure and does not generally prohibit trading on the basis of material nonpublic information).

[6] See Dissenting Statement of Comm’r Caroline D. Pham on CFTC v. Xie, Commodity Futures Trading Comm’n (Sept. 27, 2023), available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement092723 (noting that Rule 180.1 does not create a broad prohibition against trading on material nonpublic information and discussing the applicable misappropriation framework).

[7] See 7 U.S.C. § 9(1) (2018); 17 C.F.R. § 180.2 (2026).

[8] See, e.g., Matt Levine, Money Stuff: Don’t Hedge the KPIs, Bloomberg Opinion, available at: https://www.bloomberg.com/opinion/newsletters/2026-08-31/don-t-hedge-the-kpis.

[9] See Insider Trading Prohibitions, Kalshi, available at: https://kalshi.com/market-integrity/insider-trading; Prohibited and Unlawful Trading Activity, Kalshi, available at: https://kalshi.com/market-integrity/prohibited-trading.

[10]  Complaint ¶¶ 1–3, 30–57, CFTC v. Van Dyke, No. 26-cv-3369 (S.D.N.Y. filed Apr. 23, 2026).

[11] Press Release No. 9217-26, CFTC Charges U.S. Service Member with Insider Trading in Nicolás Maduro Event Contracts, Commodity Futures Trading Comm’n (Apr. 23, 2026), available at: https://www.cftc.gov/PressRoom/PressReleases/9217-26; see also Indictment, United States v. Van Dyke, No. 1:26-cr-00156 (S.D.N.Y. Apr. 23, 2026). Although Polymarket’s terms prohibit U.S. persons from participating, the CFTC alleged that Van Dyke used the platform while representing that he was located outside the United States. Complaint ¶¶ 22–29, CFTC v. Van Dyke, No. 26-cv-3369 (S.D.N.Y. filed Apr. 23, 2026); see also In re Blockratize, Inc. d/b/a Polymarket.com, CFTC No. 22-03, at 7–8 (Jan. 3, 2022).

[12] See In re Gabriel Perez, CFTC Docket No. 26-06, at 1, 10–12 (Aug. 28, 2026); Press Release No. 9289-26, CFTC Orders Gabriel Perez to Pay $172,000 for Insider Trading of Mention Market Event Contracts, Commodity Futures Trading Comm’n (Aug. 28, 2026), available at: https://www.cftc.gov/PressRoom/PressReleases/9289-26; Peter Charalambous, Ex-White House Teleprompter Operator to Pay $172,000 to Settle CFTC Probe, ABC News (Aug. 29, 2026), available at: https://abcnews.com/Politics/white-house-teleprompter-operator-172000-settle-cftc-probe/story?id=136048028.

[13] Press Release No. 9276-26, CFTC Orders George Santos to Pay $35,000 for Manipulative Trading of State-of-the-Union Event Contract, Commodity Futures Trading Comm’n (July 31, 2026), available at: https://www.cftc.gov/PressRoom/PressReleases/9276-26; In re George Anthony Devolder Santos, CFTC Docket No. 26-05, at 1, 8–10 (July 31, 2026).

[14] Kalshi Permanently Bans George Santos over State of the Union Bets, Reuters (Aug. 31, 2026), available at: https://www.reuters.com/legal/government/kalshi-permanently-bans-george-santos-over-state-union-bets-2026-08-31/.

[15] Two Insider Cases We’ve Recently Closed, Kalshi News (Feb. 25, 2026), available at:  https://news.kalshi.com/p/kalshi-trading-violation-enforcement-cases; Stopping Insider Trading, Kalshi, available at:  https://kalshi.com/policy-center/insider-trading.

[16] Two Insider Cases We’ve Recently Closed, Kalshi News (Feb. 25, 2026), available at:  https://news.kalshi.com/p/kalshi-trading-violation-enforcement-cases; Stopping Insider Trading, Kalshi, available at:  https://kalshi.com/policy-center/insider-trading.