Beyond the Trading Window: Why Prediction Markets Are the Next Frontier of Insider Trading Risks

Corporate legal departments at public and private companies are confronting a novel insider trading problem — one for which their existing compliance infrastructure was not built.

For decades, insider trading compliance has operated within familiar confines: the securities laws, the Securities and Exchange Commission (“SEC”), and the prohibition on trading a company’s stock while in possession of material nonpublic information. Publicly traded companies have developed insider trading policies, compliance groups have provided trainings, and legal teams have managed blackout periods and preclearance requests. The framework is well understood among public companies and their advisors and often unaddressed at private companies.

That framework, however, was designed for a different world. It did not anticipate the rise of prediction markets: platforms on which employees can now place bets on almost any event (from high profile events broadly relevant to society — such as who will win the U.S. presidency in 2028 ― to obscure events to which few people pay attention — such as whether Lady Gaga will wear a leather jacket at the Grammys). Prediction markets have experienced explosive growth in recent years, with monthly trading volume rising approximately 130-fold — from less than $100 million per month in early 2024 to more than $13 billion by year-end 2025.¹ But what is alarming is that these markets are not confined to politics and pop culture — they also cover corporate earnings, product launches, regulatory decisions, CEO promotions, M&A outcomes, and other events about which a company’s own employees may possess relevant nonpublic information.

Bettors can make money on prediction market platforms (primarily using cryptocurrencies), but the SEC does not regulate these betting platforms because the instruments are not, for now, regulated securities. So most insider trading and other compliance policies say nothing about them.

This is the compliance gap where federal prosecutors and other regulators have now entered ― and the consequences for employees who exploit it, as recent cases make clear, can include not only civil claims but federal criminal fraud charges, disgorgement of profits, and prison time. For companies, the risk extends to reputational harm, leakage of confidential information, regulatory scrutiny of internal controls, and civil exposure. The question is no longer whether prediction markets present a legal risk worth taking seriously. It is whether companies — public and private — have moved fast enough to address it. Most have not — yet.

This alert explains why this issue is novel, what the current enforcement and regulatory environment looks like, how the legal theory of “shadow trading” set forth in SEC v. Panuwat amplifies the risk, and — most practically — what companies should be doing right now.

Prediction Markets: A Primer

A prediction market is a regulated exchange on which participants purchase binary contracts that pay out based on whether a specified event occurs. A trader who believes the Federal Reserve will cut rates at its next meeting buys a “yes” contract; if the cut happens, the contract pays; if not, it expires worthless. Some jurisdictions regulate prediction markets as a form of gambling, but prediction market contracts look and behave like financial instruments — because they are. Both Kalshi and Polymarket operate as CFTC-registered designated contract markets. Both platforms now offer contracts tied to, among other things, corporate earnings, M&A announcements, CEO succession, regulatory approvals, and stock price milestones for publicly traded companies.

This is the landscape that traditional insider trading policies never contemplated. When a company adopted its insider trading policy years ago, it almost certainly was not contemplating a junior analyst using advance knowledge of next week’s earnings miss to purchase a “no” contract on a platform that settles in hours. The scope of events covered in prediction markets has expanded in recent years and is outside the experience of most securities lawyers. The instrument is different, and the regulator is different. Many participants apparently assume that insider trading is permissible or even encouraged in the prediction markets.

It is not.

The CFTC Steps In

The Commodity Futures Trading Commission (“CFTC”), not the SEC, is the primary federal regulator of prediction markets. The CFTC’s anti-fraud authority under the Commodity Exchange Act (“CEA”) is modeled closely on the SEC’s and prohibits manipulative or deceptive conduct in connection with derivatives contracts such as swaps.² In February 2026, the CFTC’s Division of Enforcement issued a formal advisory making clear that this authority extends to insider trading on event contracts: trading prediction market contracts on the basis of nonpublic information constitutes fraud.

This was not a subtle shift. The CFTC Enforcement Director underscored the point publicly at an NYU Law School conference in March, stating that event-contract trading based on misappropriated information is “precisely the kind of serious violation that we are going after vigorously.”³ The agency followed those words with action. In April 2026, the CFTC filed its first-ever civil insider trading complaint involving event contracts, simultaneously with federal criminal charges filed by the U.S. Attorney’s Office for the Southern District of New York (“SDNY”).

The CFTC has also proposed a sweeping new set of federal rules for prediction markets. The proposal is intended to create a durable federal framework for event contracts, allowing most sports and financial markets while providing regulators a case-by-case review process for contracts susceptible to manipulation. President Trump has publicly backed CFTC’s exclusive federal authority over these markets. The rulemaking reinforces the same message as the enforcement advisory: prediction markets are regulated financial markets, and the rules against fraud and manipulation apply.

The Cases: From Military Intelligence to AlphaRaccoon

Two criminal cases, both being prosecuted in the SDNY, help define the contours of the emerging enforcement regime.

In April 2026, the Department of Justice charged Gannon Ken Van Dyke, a U.S. Army Special Forces soldier, with using classified information about an impending U.S. military operation — the capture of Venezuelan President Nicolás Maduro — to purchase Polymarket contracts predicting that Maduro would be out of power by January 31, 2026. Van Dyke allegedly turned a $33,000 investment into over $400,000 based on information he gleaned from his involvement in the raid. The charges include commodities fraud, wire fraud, and unlawful use of confidential government information for personal gain. Van Dyke has pleaded not guilty; trial is expected later this year. Notably, the CFTC characterized this as its first use of its so-called “Eddie Murphy Rule” (a CEA provision barring persons who obtain confidential government information from using it to trade futures, options, or swaps), applied here to prediction market event contracts for the first time.⁴

The second case arrived in May 2026, and it is more directly relevant to public and private companies. Federal prosecutors charged Michele Spagnuolo, a staff information security engineer at Google, with using confidential internal data — specifically, advance access to Google’s proprietary “Year in Search” results — to place $2.7 million in Polymarket bets across 25 separate outcome markets. Operating under the account name “AlphaRaccoon,” Spagnuolo allegedly profited by $1.2 million. The CFTC filed a parallel civil complaint the same day. Spagnuolo faces charges of commodities fraud, wire fraud, and money laundering.

U.S. Attorney Jay Clayton — himself a former SEC Chairman — put it plainly: “Corporate insiders cannot use confidential business information to turn a profit in our markets.”⁵ 

Notably, the information at issue in the Google case was not financial data. It was marketing data — search trends — that had no obvious effect on Google’s stock price yet still exposed the prediction market trader to federal fraud liability. The category of “inside information” that matters in a prediction market context is therefore broader than the traditional securities insider trading standard. Information need not be “material” to an issuer’s stock under the familiar standards articulated by the U.S. Supreme Court in seminal cases such as Basic Inc. v. Levinson, 485 U.S. 224 (1988)— it need only be material to the outcome of the tradeable event contract, which is a meaningfully lower and broader bar.

The Panuwat Dimension: Shadow Trading Comes to Prediction Markets

To understand why prediction market risk is so difficult to contain within existing insider trading frameworks, it helps to understand the legal theory that SEC v. Panuwat introduced to securities law — and why that theory translates directly to this context.

In Panuwat, the SEC successfully argued that a biopharmaceutical executive who learned his company was about to be acquired and then traded options in a competitor’s stock — not his own employer’s — committed insider trading under the misappropriation theory. We previously wrote about the implications of that decision. Notably, in that case, Mr. Panuwat violated the written insider trading policy of his employer, which defined insider trading as using information learned in the course of employment to buy or sell stock in any publicly traded company — a reminder that how companies draft their policies matters. The lesson is not that shadow trading is prima facie always unlawful — it is that policy drafting choices have real consequences for employees’ exposure.

The SEC also established misappropriation by pointing to a confidentiality agreement Mr. Panuwat signed with his employer and by relying on traditional principles of agency law arising because the employer entrusted Mr. Panuwat with confidential information. These fact patterns may also be present to establish misappropriation of information for contracts in prediction markets.

Prediction markets extend the Panuwat risk further. An employee who learns that her company will announce a major acquisition next week and buys a Polymarket contract predicting that the company’s stock will increase more than 10 percent by month-end is personally benefiting from material, non-public information just as surely as if she bought call options. But the Polymarket contract is not a security. The SEC has no jurisdiction. Enter the CFTC — which has now asserted, in both enforcement actions and formal guidance, that trading event contracts on non-public information is fraudulent conduct under the CEA, applying the same misappropriation framework as does the SEC.

The result is a coverage gap that existing policies have not closed. Most insider trading policies define their scope in terms of “securities” or the company’s own stock — instruments under SEC jurisdiction. They are silent on event contracts, prediction markets, and CFTC-regulated instruments. Insider trading policies also define the relevant information as material in a securities law framework. An employee reading an insider trading policy today would find no explicit prohibition on placing a Polymarket bet using non-public information she learned at the office and no warning about less significant information that might be used in a prediction market. Finally, most private company employees will not even have a securities law insider trading policy to help warn them of potential risks. Silence about prediction markets may be a problem, but the answer is not necessarily to add a blanket prohibition into the company’s existing insider trading policy (“ITP”) regarding transactions in prediction markets, which a company is unlikely to be able to monitor anyway.

What the SEC’s Role Is — And Is Not

A natural question is whether the SEC’s insider trading authority reaches prediction markets at all. The short answer is that the SEC’s jurisdiction covers securities, and prediction market event contracts are not deemed securities. Kalshi and Polymarket contracts are derivatives regulated by the CFTC; the SEC currently has no direct enforcement authority over them.

That said, the SEC’s jurisdiction can be implicated indirectly. If prediction market trading on material, nonpublic information is used to inform subsequent securities trading — or if the prediction market activity is itself evidence of a broader scheme involving securities — the SEC can and likely will coordinate with the CFTC and DOJ. The Spagnuolo case, which involved SDNY criminal charges alongside the CFTC civil complaint, reflects a multi-agency coordination model. Companies and their employees should not assume that the absence of direct SEC jurisdiction means this is a lower-stakes issue. Criminal prosecution in SDNY is as serious as it gets.

There is also a broader reputational and civil exposure risk for companies whose employees are implicated. Even where the employee acts alone, a public prosecution that names the company’s confidential data as the source of the trading advantage is damaging and could expose the company to civil litigation, regulatory scrutiny of its information security practices, and reputational harm with investors and counterparties. The leak of competitively sensitive information through the existence of the unusual prediction market trading activity might be ascertained by astute observers of betting markets, and they in turn may use that information in the securities market.

No Statutory Mandate for Company Policies — A Double Edged Sword

An important question is whether any statute or regulation affirmatively requires companies to maintain a policy covering participation in prediction markets. Another important question is whether a company faces control person liability if an employee trades on such a market using company information. The answer to both questions currently is materially different from the securities law context.

Under the federal securities laws, Exchange Act § 20(a) imposes control person liability on any person who directly or indirectly controls a violator of the securities laws. Rule 10b-5 and related caselaw also create a robust framework that has been interpreted to require issuers and registered entities to maintain policies and supervisory procedures adequate to prevent insider trading in securities. The CFTC’s anti-fraud authority under CEA § 6(c)(1) runs against individuals who commit fraud — there is currently no CEA equivalent of Exchange Act § 20(a). There is also no regulatory requirement for private companies to maintain formal ITPs covering CFTC-regulated instruments.

The absence of a statutory mandate is a double-edged sword. Unlike under the federal securities laws, where Exchange Act § 20(a) and related provisions create strong legal incentives for companies to maintain adequate insider trading compliance programs, no CEA equivalent exists for prediction markets, and no regulatory safe harbor rewards companies for having a policy. Thus, companies face no immediate obligation to act, which may counsel against overcorrecting before the legal framework settles. But individual employees remain fully exposed regardless of whether their employer has a policy, and perhaps ignorant of the risk absent a policy or training program. Companies that do nothing forgo the benefits that a well-designed compliance program provides both companies and their employees. The CFTC’s proposed rulemaking could close this gap — and companies should be watching closely.

The Compliance Gap and What to Do About It

Panuwat taught us that the answer to new theories of insider trading liability is not always to update the policy — it may be best to update the training.

The same logic applies here, with one important distinction: prediction markets involve a different regulator, different instruments, and different platforms that employees may not intuitively associate with “trading” at all. An employee who would never dream of trading her company’s stock on inside information may see no problem placing a Kalshi bet based on information she learned at work. The instrument feels different; the platform looks like a game; and — critically — her company’s ITP says nothing about it.

Updating the written ITP to add “event contracts” and “prediction markets” to the list of covered instruments might be intuitively the right step, but it may or may not be the right one — because the materiality standards, prohibitions, exceptions, and procedures are likely to be different from those in a securities insider trading policy, leading to significant confusion about when the ITP’s preclearance procedures, blackout periods, and reporting obligations apply, not to mention that betting markets are overseen by a completely different regulator (the CFTC versus the SEC). The authors are of the view that a separate policy for event contracts and prediction markets may be preferable.

If a company determines that it should create a written prohibition on these types of activities, an important threshold question is what form such new policy should take. As noted above, we recommend against simply amending the ITP to add prediction markets. Instead, companies should consider a short, distinct policy that is separate from the ITP; housed, for example, in the general employee handbook or code of conduct under a topic such as “Improper Personal Benefits” or “Confidentiality and Misuse of Company Information.” The policy need not be long or complex. Employees, directors, officers, and advisors should simply never bet on company-related events using information gained through their role — and the policy should say so clearly, without calling it an “insider trading” policy or conflating it with the formal ITP. Regardless of whether a new or amended policy or code of conduct is adopted, what is also certainly needed is targeted training that explains, in plain language, three things:

First, that prediction markets are federally regulated financial markets, and that the prohibition on trading on nonpublic information applies to bets on Kalshi and Polymarket just as one should not trade in the company’s stock while in possession of material nonpublic information.

Second, that “nonpublic information” in this context is broader than employees may assume. It is not limited to earnings results, M&A plans, significant regulatory approvals or other events that are material to transactions in securities. It encompasses any confidential business information material to a tradeable event contract outcome. The Google case is instructive: the data at issue was marketing information unlikely to move Google’s stock, yet it still exposed the trader to federal fraud liability when used in the prediction markets. Companies in every sector should understand that employees may possess relevant nonpublic information with no connection to the value of the companies’ securities.

Third — and this is the Panuwat extension — employees with advance knowledge of corporate developments should understand that the prohibition on misuse of nonpublic information is not limited to transactions in employer securities or to prediction market contracts specifically related to their employer. Unless based on public information, a bet on an industry index, on a competitor’s earnings, on an impending shake-up in the C-Suite of a competitor, or on a regulatory outcome that affects the sector could constitute misuse of nonpublic information exposing the employee to civil and criminal liability, even where the conduct does not fit the traditional rubric of “insider trading.”

A Fast-Moving Landscape — Monitor Closely

The regulatory and legal environment around prediction markets is changing rapidly. The CFTC’s proposed rulemaking — the most comprehensive federal attempt yet to define the boundaries of permissible event contract activity — will include a public comment period and will likely address what anti-fraud and anti-manipulation obligations apply to these markets and the users who trade on them.

Congressional activity adds another layer. House Oversight Committee Chair James Comer has launched a formal inquiry into both Kalshi and Polymarket, demanding that both platforms explain their internal surveillance and referral processes for suspected insider trading. Proposed legislation would prohibit federal officials and political appointees from trading event contracts on government-related outcomes while in possession of nonpublic information.

For companies, the near-term posture should be monitoring legal developments combined with action. The direction is unmistakable: regulators view MNPI-based prediction market trading as fraud, and they are actively pursuing it.

Key Takeaways for Public and Private Companies

Companies should consider the following steps now:

Recognize this is an issue for both private and public companies. Liability exposure is not limited to directors and employees of publicly traded companies. Private companies, healthcare systems, universities, nonprofits, and government contractors may all possess highly sensitive information — procurement data, investigative findings, clinical results, leadership decisions — that is material to tradeable event contracts. Organizations such as private companies that have never maintained securities law insider trading policies should consider whether this new enforcement environment warrants a policy for event contracts and prediction markets (and, of course, for transactions in securities of other publicly traded companies based on information the private company possesses).

Consult your outside legal counsel. Companies should speak with their outside advisors to determine whether any changes to their education, ITP, compliance policies and code of conduct are advisable in light of these developments.

Make thoughtful policy choices. Policy drafting choices in this area require careful thought. Best practices in this area have not yet developed, but we proffer some suggestions (and reserve the right to change these as the law and best practices appear):

• Education versus Policy. Companies may choose to rely only on education and not adopt a policy until a policy is mandated or until control person liability is asserted elsewhere. We believe it will be preferable to have both a policy and education.
• Separate Policy. If a company elects to develop a written policy, it may wish to keep such policy relating to prediction markets separate from its policies related to securities law compliance to avoid confusion about different materiality standards, prohibitions, exceptions, and procedures. A policy could be short and could be in a stand-alone document or included in codes of conduct, confidentiality agreements, or other policies about the use of information obtained during employment.
• Policy Name. We discourage calling the policy an insider trading policy; this creates confusion with securities law ITPs. Consider a different title such as “Policy on Betting Using Nonpublic Information.”
• Scope of Prohibition. Some of the choices for what a policy may prohibit include:
  • No Use of Nonpublic Information. A broad prohibition on prediction market trades with respect to any company or event based on nonpublic information obtained as a director or employee of the company may be a conservative, but advisable, path to take. On the other hand, a company might decide not to prohibit bets affecting third-party companies or events so long as there is no use of nonpublic information obtained as a director or employee.
  • No Bets Related to the Company. A company might instead consider a prohibition on bets relating to company events regardless of whether the information is public. Major professional sports leagues have long recognized there are inherent problems if athletes bet on their own sport, even if not their own team. The NCAA prohibits athletes from betting on any sport sponsored by the NCAA, including fantasy leagues with an entry fee and professional sports. Companies should consider whether similar concerns apply to their employees betting on company-related events.
  • Enhanced Restrictions for Directors, Officers, and Some Employees. Directors, officers, and employees with regular access to the most sensitive corporate information — M&A activity, regulatory strategy, clinical pipeline data, earnings preparation — present a heightened risk profile. Regardless of whether companies adopt policies for all directors and employees, we suggest companies adopt a categorical prohibition on company-based prediction market trading for these individuals, rather than relying solely on training or self-policing.
  • Our View. We suggest the prohibition should be absolute for all personnel with respect to bets on or against the company or its products and services and perhaps absolute for bets involving the same industry or competitors. We do not believe a company should adopt a policy covering other types of betting (for example, on world events, politics, sports, or entertainment if the company does not normally have nonpublic information about those areas).
• Categories of Information. Corporate information that drives prediction market liability extends well beyond financial data. Companies might inventory the types of confidential information their employees commonly possess and assess whether any of it is material to tradeable event contracts.
• Window Periods and Pre-Clearance. If a company chooses not to prohibit prediction market activity with respect to the company, it should consider whether to have open and closed windows (blackout periods) for prediction market activity involving the company, and whether pre-clearance of prediction market activity should be required of directors and senior personnel. Such an approach (rather than a flat prohibition) would create significant compliance issues and oversight complexity, in part because processes will have to frequently change to cover many kinds of information not captured as material information for securities law compliance, and the subjects of betting markets are perpetually evolving based on market interest and topic newsworthiness, making policies extremely difficult to keep current.

Update your training programs and certifications. Policy language alone is not enough (and may be counterproductive). Employees need targeted, plain language training that explains what prediction markets are, why they are subject to federal anti-fraud law, and what kinds of internal information could give rise to liability if used to inform a bet. Training on this topic could be combined with training on other topics (such as securities law insider trading). If policies are adopted to address event contracts and prediction markets, consider annual certifications of compliance with those policies, which might be included in a single certification of compliance with the code of conduct.

Monitor regulatory developments. The CFTC’s proposed rulemaking and pending or future congressional legislation are likely to shape the landscape materially over the years. Companies should track these developments —and their counsel should be prepared to advise when new obligations crystallize.

For more information on this topic, please contact the authors or your regular Vinson & Elkins attorney.

This client alert is provided for informational purposes only and does not constitute legal advice.

¹Kalshi and Polymarket alone generated a combined volume exceeding $37 billion in 2025. Hilary Schmidt, Accounting for the Explosive Growth in Prediction Markets, Int’l Banker (Jan. 21, 2026), https://internationalbanker.com/finance/accounting-for-the-explosive-growth-in-prediction-markets/.

²The CFTC believes the Commodity Exchange Act is clear that prediction market and other event contracts are swaps. Prediction Markets, 91 Fed. Reg. 12,516, 12,517 (Mar. 16, 2026) (advance notice of proposed rulemaking, noting that “event contracts can fall within multiple subsections of the CEA’s definition of ‘swap.’”); CFTC, Div. of Mkt. Oversight, Staff Letter No. 26-08, Prediction Markets Advisory, at 2 (Mar. 12, 2026), https://www.cftc.gov/csl/26-08/download.

³David I. Miller, Director of Enforcement, CFTC, Remarks at NYU Law School — CFTC Enforcement Priorities, Insider Trading in the Prediction Markets, and Cooperation with the CFTC (Mar. 31, 2026), https://www.cftc.gov/PressRoom/SpeechesTestimony/opamiller1.

⁴Press Release, CFTC, CFTC Charges U.S. Service Member with Insider Trading in Nicolás Maduro-Related Event Contracts (Apr. 23, 2026), https://www.cftc.gov/PressRoom/PressReleases/9217-26 (quoting CFTC Enforcement Director David Miller: “This case marks the first time the CFTC has charged insider trading involving event contracts, and the first time the CFTC has used the so-called ‘Eddie Murphy Rule’ to bring charges based on the misuse of government information.” Miller noted (perhaps for younger listeners) that “[t]he rule is named for Murphy’s role in [the 1983 film] Trading Places where his character, Billy Ray Valentine, made a fortune with a stolen government crop report.”).

⁵Press Release, U.S. Attorney’s Office, S.D.N.Y., Google Employee Charged With Insider Trading (May 28, 2026), https://www.justice.gov/usao-sdny/pr/google-employee-charged-insider-trading.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.