The Commodity Futures Trading Commission has brought two landmark insider trading prosecutions against prediction market participants in as many months, signaling a sustained enforcement campaign across the event-contract industry.
Back
CFTC's Selig warns prediction markets face 2 insider trading cases
The CFTC has charged two individuals with insider trading on Polymarket in the past six weeks, including a Google engineer who allegedly made $1.2 million trading on confidential company data, Chairman Michael Selig said.
"We will not tolerate fraud, manipulation, or insider trading, regardless of the technology or platform that is used," Selig said in a CNBC interview Tuesday, citing the agency's parallel civil complaints against Michele Spagnuolo and Army Master Sergeant Gannon Ken Van Dyke.
The Spagnuolo case, unsealed May 28 in Manhattan federal court, alleges the 36-year-old Google software engineer used internal company data to trade 23 "Year in Search" contracts with near-perfect accuracy, wagering about $2.8 million and profiting $1.2 million. The Van Dyke case, filed April 23, charges the Special Forces soldier with using classified intelligence about the Maduro capture operation to buy Polymarket contracts, turning $33,000 into about $410,000.
The twin prosecutions mark a turning point for an industry that has grown more than tenfold since 2024, with eight CFTC-registered exchanges self-certifying more than 3,000 event contracts. The agency has also sued seven states — all led by Democratic attorneys general — to assert exclusive jurisdiction over prediction markets, while the White House reviews a proposed rule that could ban certain contracts deemed contrary to the public interest.
CFTC Enforcement Director David I. Miller identified insider trading in prediction markets as one of five enforcement priorities in a March 31 speech, calling the belief that insider trading law does not apply to event contracts a "myth." The agency's March advanced notice of proposed rulemaking drew 3,534 public comments before the April 30 deadline, and the Office of Management and Budget began reviewing a formal proposal May 26.
The legal framework underpinning the crackdown rests on two pillars. The Commodity Exchange Act's anti-fraud provisions, expanded under the 2010 Dodd-Frank Act and codified in CFTC Rule 180.1, extend insider trading prohibitions to event contracts classified as swaps. The so-called "Eddie Murphy Rule" — Section 4c(a)(4) of the CEA, enacted after then-Chairman Gary Gensler told Congress the misconduct depicted in the 1983 film "Trading Places" was not illegal — specifically bars trading on misappropriated government information and was invoked for the first time in the Van Dyke case.
The Spagnuolo case extends liability beyond government information to corporate confidential data. The Justice Department charged him with commodities fraud, wire fraud, and money laundering alongside the CFTC's civil complaint, applying the misappropriation theory that has long governed securities insider trading. U.S. Attorney Jay Clayton said the charges "reinforce a decades-old message: corporate insiders cannot use confidential business information to turn a profit in our markets."
President Donald Trump weighed in on the jurisdictional dispute Tuesday, posting on Truth Social that the CFTC must retain exclusive authority over prediction markets and that the federal government should protect the industry. The agency has filed lawsuits against Arizona, Connecticut, Illinois, New York, Minnesota, Wisconsin, and most recently Rhode Island, which sued Kalshi and Polymarket last week under state sports-betting statutes.
The platforms themselves are tightening rules. Kalshi and Polymarket announced new prohibitions against insider trading and market manipulation in March, with Kalshi's rules now barring trading by anyone with access to material nonpublic information, employees of source agencies for any contract, and decision-makers who could influence an event's outcome.
For companies and individuals, the enforcement trajectory carries direct compliance implications. The CFTC has signaled it will pursue violations using multiple legal theories simultaneously, and the DOJ has demonstrated willingness to bring parallel criminal charges carrying substantial prison sentences. Companies should review insider trading policies to expressly cover event contracts, assess which employees have access to information material to prediction markets, and update training programs accordingly, according to the agency's guidance.
This article is for informational purposes only and does not constitute investment advice.
