Prediction Markets: How Insider Trading Is the New Crisis
Prediction markets, also known as information markets, allow participants to bet on the outcome of future events through online platforms. Events include sports competitions or election results. The products that are traded on prediction markets are often called event contracts. Event contracts are “contracts that allow traders to bet on the occurrence of nonoccurrence of a specific event.”
The Commodity Futures Trading Commission (“CFTC”) explains how prediction markets “…offer a variety of products designed to help the public forecast, plan for, hedge, and even harness perceptions of future events.” Contracts trade continuously until the event concludes, which allows participants to sell early if they expect to lose in order to minimize their losses. Given the nature and rapid growth of prediction markets in the last couple of years, many are concerned with regulatory issues and risks.
In response to the concerns, the CFTC Enforcement Division issued a Prediction Markets Advisory, which makes it clear that insider trading principles apply to prediction markets.
On April 23, 2026, the CFTC filed a complaint in the U.S. District Court for the Southern District of New York against Gannon Ken Van Dyke (“Van Dyke”), who is an active-duty service member in the U.S. Army. The complaint alleges that Van Dyke engaged in insider trading on website, Polymarket.com using “classified nonpublic information regarding U.S. operations to capture former Venezuelan President Nicolás and his wife, Cilia Flores (“Operation Absolute Resolve”)”.
This case will likely shape how prediction markets will be regulated in the future, especially within the context of insider trading.
The rising trend of insider trading in prediction markets prompted the House Committee on Oversight and Government Reform Chairman James Comer to launch an investigation into how users of prediction market platforms Polymarket and Kalshi are possibly using nonpublic information to engage in insider trading.
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Ellen Lee is an associate in the New York office of Faruqi & Faruqi LLP and focuses her practice on securities litigation. She is currently awaiting admission in New York.
