US Government Launches Multiple Insider Trading Investigations into Prediction Market Polymarket

The US government has initiated at least three previously unreported investigations into trading activities on the popular prediction market platform, Polymarket. These probes, revealed through documents obtained by WIRED via a Freedom of Information Act request, signal a significant escalation in regulatory scrutiny over the burgeoning, yet controversial, prediction market industry. The Commodity Futures Trading Commission (CFTC), the federal agency tasked with regulating these markets, is at the forefront of these investigations, shedding new light on its approach to potential illicit activities.

Prediction markets, platforms where users bet on the outcome of future events—ranging from political elections and economic indicators to scientific breakthroughs and celebrity gossip—have rapidly grown in popularity. Participants buy and sell shares corresponding to the probability of an event occurring, with prices fluctuating based on collective sentiment and information. While proponents argue they aggregate information efficiently and provide valuable insights, critics raise concerns about their susceptibility to manipulation, insider trading, and their resemblance to unregulated gambling. The CFTC views these event contracts as commodities, subjecting them to the same anti-fraud and anti-manipulation rules that govern traditional financial markets.

In early May, CFTC Chairman Michael Selig authorized an order empowering the agency’s enforcement division to commence a private investigation into alleged insider trading on Polymarket event contracts related to pardons issued by former President Joseph Biden. This order granted the CFTC broad investigative powers, including the authority to compel testimony, issue subpoenas, administer oaths, and demand the production of relevant documents. Such measures are standard in serious financial investigations, underscoring the gravity with which the agency is approaching these allegations.

While the specific trades under suspicion were not detailed in the documents obtained by WIRED, the timing of this investigation order is highly significant. It came merely weeks after an NPR report highlighted a highly suspicious Polymarket trader who amassed over $300,000 in profits from pardon-related markets in the waning days of the Biden administration. This trader reportedly made highly accurate wagers that the former president would issue preemptive pardons to several prominent critics of the MAGA movement. These individuals included former US Representatives Liz Cheney and Adam Kinzinger, and US Senator Adam Schiff. The uncanny accuracy of these bets strongly suggested access to non-public, material information regarding executive decisions, forming the basis for the insider trading allegations. The investigation aims to determine if participants exploited privileged information, which would constitute a clear violation of the Commodities Exchange Act.

Later in May, Chairman Selig approved another significant investigation order, this time focusing on "Iran event contracts" on Polymarket. As with the Biden pardon documents, the order itself did not provide granular details regarding the specific trades or individuals involved. However, this approval closely followed a 60 Minutes report that aired two weeks prior. That report unveiled a network of suspicious Polymarket accounts that collectively generated $2.4 million in profits from Iran-related trades, boasting an astonishing 98 percent win rate. Such a consistently high success rate on complex geopolitical events, which are inherently unpredictable, is a major red flag for potential insider trading or market manipulation. The implications of insider trading on contracts related to international relations and potential conflict are particularly severe, raising concerns about national security and the integrity of information flows. The CFTC would be looking into whether individuals used advance knowledge of sensitive geopolitical developments to profit illegally.

These investigations have prompted critical commentary regarding the CFTC’s regulatory framework and its effectiveness. Joseph Konizeski, a former chief trial attorney in the CFTC’s division of enforcement, expressed concern, stating, "If these investigations are being prompted solely by press reports of potential violations of the Commodities Exchange Act, that’s a significant sign of weakness in this regulatory scheme." Konizeski’s observation suggests a reactive rather than proactive regulatory stance, implying that the CFTC may not possess adequate internal mechanisms for identifying suspicious trading patterns independently. This reliance on external media reports could allow illicit activities to persist undetected for longer periods, potentially enabling substantial illicit gains before any official action is taken. This criticism aligns with broader concerns that have emerged in what is being referred to as the "second Trump era," where the CFTC has faced scrutiny for its perceived leniency and friendliness towards the burgeoning prediction market industry. Critics argue that the agency has been slow to establish clear guidelines and enforce existing regulations vigorously, allowing these platforms to operate in a gray area.

In July, a third investigation was greenlit by Chairman Selig, focusing on suspected insider trading related to "Google-themed Polymarket event contracts." An email exchange included in the documents obtained by WIRED, from Paul Hayeck, the acting director of the CFTC’s department of enforcement, specified that this investigation would target "additional individuals who may have engaged in insider trading related to Google’s 2025 Year in Search Ranking." Hayeck further noted that the Southern District of New York (SDNY) is conducting a "parallel investigation," indicating a coordinated effort between the civil regulator and criminal prosecutors. Crucially, Hayeck clarified that the CFTC’s investigation would be distinct from the ongoing, high-profile case against Michele Spagnuolo, a former Google engineer previously accused of insider trading on Polymarket. This suggests the CFTC believes there may be a broader network of individuals involved in exploiting non-public corporate information on the platform. The nature of "Year in Search Ranking" contracts implies trading on proprietary information about Google’s internal algorithms, data, or release schedules—information that would clearly be material and non-public.

When contacted for comment, the Southern District of New York declined to provide any statement. Google also declined to comment directly on the ongoing investigation but referred WIRED to a previous statement issued in June, confirming that Michele Spagnuolo was no longer employed by the company. The CFTC did not respond to requests for comment or inquiries about the current status of these investigations. Polymarket, through its deputy chief legal officer Olivia Chalos, stated in an email to WIRED, "While we do not comment on specific investigations, we regularly refer matters to law enforcement and support ongoing investigations as part of our commitment to protecting the integrity of our markets." This statement reflects the company’s official stance of cooperation with authorities while maintaining a policy of not discussing specific cases.

Polymarket itself has been under intensified regulatory scrutiny. Its flagship platform, which operated with broader market offerings, was banned from the United States in 2022 due to regulatory challenges. However, the company was permitted to launch a US-regulated version in late 2025, albeit with a more limited set of markets designed to comply with CFTC guidelines. The company recently completed a significant fundraising round led by 1789 Capital, a venture capital firm associated with Donald Trump Jr. This funding round reportedly valued Polymarket at an astonishing $21 billion, underscoring the immense financial interest and speculative capital flowing into the prediction market space. The political connections and the high valuation further amplify the public and regulatory interest in the platform’s operations and integrity. Adding to the company’s challenges, The New York Times has also reported that the CFTC is reportedly investigating Polymarket as a whole, not just individual traders, for broader compliance issues.

The regulatory spotlight is not exclusively on Polymarket. Kalshi, another prominent prediction market platform and Polymarket’s archrival, has also been the subject of CFTC investigations into potential insider trading in the past. In contrast to Polymarket’s reactive approach, Kalshi has reportedly adopted a more proactive stance, having referred at least 32 cases of suspicious trading activity to the CFTC, according to The New York Times. This highlights varying levels of internal compliance and cooperation within the industry.

A notable instance of regulatory action against a Kalshi trader involved former US Representative George Santos. The CFTC fined Santos $35,000 for his conduct related to a Kalshi contract concerning whether he would attend Trump’s 2026 State of the Union address. Santos also faced repercussions directly from Kalshi, which issued its first-ever lifetime ban against him for violating its rules on market manipulation for the same behavior, additionally fining him just over $71,000. It is important to note that while facing civil penalties and a platform ban, Santos was not criminally charged in this particular case, illustrating the different tiers of enforcement that can apply to such violations.

So far, two arrests have been made in connection with broader insider trading investigations stemming from Polymarket activities, signaling the potential for criminal charges in cases involving significant illicit gains and access to sensitive information. In April, federal authorities apprehended a US special forces officer. Prosecutors allege that this officer utilized classified information to generate more than $400,000 in profits on Polymarket event contracts related to the capture of former Venezuelan leader Nicolás Maduro. This case underscores the serious national security implications when individuals with access to government secrets exploit them for financial gain on these platforms.

In May, Michele Spagnuolo, the Google engineer, was arrested while traveling to New York. He is accused of making over $1.2 million through insider trades on Polymarket. In both the special forces officer’s case and Spagnuolo’s, the CFTC filed civil charges, while the Department of Justice (DOJ) pursued parallel criminal fraud charges. These dual actions reflect the government’s two-pronged approach to combating financial misconduct—civil penalties for regulatory violations and criminal prosecution for fraudulent activities.

Both men are currently fighting back against these charges, employing a novel legal defense: they argue that Polymarket trades should be classified as a form of betting or gambling, rather than as commodities. If successful, this argument could potentially exempt their activities from the stringent regulations of the Commodities Exchange Act, thereby undermining the legal basis for the CFTC’s and DOJ’s charges. This legal battle represents a critical test case that could significantly impact the future regulatory landscape for prediction markets. The outcome will likely determine whether such platforms are treated as sophisticated financial instruments subject to strict oversight or as more akin to recreational gambling, with fewer regulatory burdens.

It remains unclear whether the Department of Justice has initiated parallel criminal investigations into the specific Iran War or Biden pardon contracts currently under CFTC scrutiny. The DOJ did not immediately respond to requests for comment regarding these specific cases. However, a former CFTC staffer, speaking to WIRED, indicated that parallel criminal investigations are "likely, given the significance of the matters." This suggests that the high-stakes nature of these alleged insider trading activities, particularly those touching upon executive pardons and international relations, would typically warrant a review by criminal enforcement agencies.

These unfolding investigations underscore the growing challenges regulators face in overseeing the rapidly evolving landscape of prediction markets. As these platforms attract increasing investment and public attention, the legal and ethical boundaries of trading on future events are being rigorously tested. The outcomes of these probes, both civil and potentially criminal, will undoubtedly shape the future of prediction markets, determining the extent to which they are integrated into mainstream finance or remain a niche, highly scrutinized industry.

Update 9/11/2026 4:15 pm ET: This story has been updated to include a response from SDNY.