Prediction Markets and Insider Trading: Compliance Considerations

Prediction market trading based on material nonpublic information can create exposure—both for the individual engaged in the trading and the company at which that individual works—under multiple legal frameworks. For example, on May 26, 2026, both the Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) brought charges against a Google, LLC employee for allegedly placing insider bets on Polymarket based on confidential Google search information. The employee allegedly placed wagers on who would be the “most searched” people during given time periods. The DOJ’s charges are criminal and include causes of action for commodities fraud, wire fraud and money laundering. (See generally United States v. Spagnuolo, 26-MAG-2020 (S.D.N.Y.).) The CFTC’s charges are civil and include charges for insider trading. (See generally Commodity Future Trading Commission v. Spagnuolo, 26-cv-4419 (S.D.N.Y.).)

• Insider trading. Traditional insider trading principles may be implicated where an event contract is a security or security-based instrument. At a recent Congressional committee hearing, in response to a question regarding the SEC’s statutory authority to regulate prediction markets, SEC Chairman Paul Atkins reportedly stated that “[a] security is a security regardless of how it is, and some of the nuance with prediction markets and the products depends on wording and what exactly is being done.” Even where the classical theory of insider trading may seem inapplicable because prediction market traders may not owe duties to market counterparties, the misappropriation theory remains relevant when a person trades on information obtained in breach of a duty owed to the information source (e.g., information obtained in an employment relationship).
• Other anti-fraud statutes. Federal anti-fraud statutes—including the mail and wire fraud statutes, as indicated—apply to prediction markets under various theories, including misappropriation of confidential information through the use of interstate commerce for personal benefit. At a recent securities enforcement conference, Jay Clayton, U.S. Attorney for the Southern District of New York, noted that he anticipated prosecutions involving prediction markets and stated that “[b]ecause it’s a prediction market doesn’t insulate you from fraud.” If, for example, an individual were to create a prediction market based on non-public information from which the individual already knows the outcome, unwitting participants who place wagers against the occurrence of that event may arguably have been defrauded.
• CFTC. The CFTC has asserted exclusive jurisdiction over event contracts offered on or through designated contract markets. In March 2026, CFTC Enforcement Director David Miller stated that “a myth has spread that insider trading is permissible ... in the prediction markets. ... Not so. Insider trading in the commodity futures and swap markets is prohibited by the CEA and relevant CFTC regulations,” and that “[i]nsider trading in the prediction markets—where there is misappropriated information—is precisely the kind of serious violation that we are going after vigorously.”

Even in cases where enforcement actions may focus on individual conduct, SEC-regulated entities must nevertheless be mindful of their supervisory and compliance obligations, which require regulated entities to devise and implement policies, procedures and controls aimed at preventing insider trading. And even companies that are not directly regulated must be mindful of the potential for secondary liability based on, for example, aiding-and-abetting theories.

Material Nonpublic Information (MNPI)
Coupled with an evolving legal landscape, the potential for secondary liability and regulated entities’ MNPI-related compliance obligations creates risk for many companies.

For that reason, companies should treat the category of potentially relevant confidential information broadly when addressing prediction markets. In addition to traditional categories of MNPI under securities laws, such as earnings information or knowledge of pending M&A activity, event contracts may make operational, regulatory, litigation, product, cybersecurity and strategic information relevant to trading outcomes. Below are some event contract categories which may also constitute MNPI:

• M&A activity, strategic transactions, and significant corporate restructurings
• Regulatory submissions, approvals or adverse enforcement actions
• Pending or threatened litigation and significant legal developments
• Financial performance, earnings data and material changes to guidance
• Executive leadership changes, including departures and appointments
• Product development timelines, launch dates and service rollouts
• Clinical trial outcomes
• Privacy or cybersecurity incidents
• Government contract awards, terminations or policy decisions affecting a company’s business or industry
• Key performance metrics or similar data

Prediction markets also expand the universe of employees who could misuse sensitive information. For example, a researcher with advance knowledge of the development status or potential approval timeline for a new drug candidate, an employee with knowledge of a pending transaction, or an IT professional who first discovers a major security breach, could trade on related event contracts even if the event contract may not constitute a security or even if those individuals are not viewed as “insiders.”

Enforcement Activity and Jurisdictional Landscape
As discussed above, the DOJ, SEC and CFTC have each asserted enforcement authority over insider trading in the prediction markets.

In addition to its May 26, 2026, action, the CFTC announced in April 2026 an enforcement action involving an active-duty service member for alleged trading in event contracts using classified military intelligence about “Operation Absolute Resolve,” the U.S. military operation targeting the removal of former Venezuelan President Nicolás Maduro. In addition, Kalshi published disciplinary notices in April 2026 involving political candidates who traded on event contracts involving their own campaigns. (See here, here and here.) Certain states—e.g., California, Illinois, Maryland, New York and Wisconsin—have issued executive orders restricting or barring state employees from using nonpublic information in connection with prediction markets, and multiple federal bills have been introduced to address prediction-market trading by government officials. In addition, the jurisdictional landscape involves multiple and potentially overlapping federal regulatory enforcement frameworks. Further, the CFTC is currently involved in litigation with several states regarding regulatory jurisdiction over prediction markets and has filed an amicus brief in the U.S. Circuit Court of Appeals for the Ninth Circuit asserting its exclusive jurisdiction over U.S. commodity derivatives markets, including prediction markets.

What Should Companies Do?

“Mind the Gap”
Most corporate insider trading policies are drafted to cover “securities,” while many prediction market contracts may not fall, or be perceived to fall, within the definition of a “security.” For example, an employee who understands that stock trading is prohibited while in possession of MNPI may mistakenly believe that betting on whether the company will announce a merger, release a product, receive regulatory clearance or hit an earnings milestone is outside the policy. That ambiguity creates risk for both the individual and the company.

Trading on prediction markets using MNPI or confidential company information can present legal, regulatory, contractual, reputational and employment-related risks regardless of whether the relevant event contract is technically a security. The CFTC has identified prediction market insider trading as an enforcement priority, the SEC may have jurisdiction over certain company-linked instruments, and federal wire fraud statutes may provide an additional basis for broad criminal exposure. For issuers, an apparent policy gap or employee misuse of company information can also raise investor, board and regulator questions about the company’s compliance culture, as well as, in certain cases, potential regulatory exposure.

There are multiple approaches for addressing prediction markets within a company’s compliance framework:

• Insider trading policy. Companies can expand insider trading and trading pre-clearance policies to cover prediction markets and event contracts expressly, making clear that trading or tipping in connection with company-related events is prohibited, regardless of how the instrument or product being “traded” is labeled. The benefit of this approach is that it maintains MNPI-related restrictions where employees already expect to find them and, for public companies that disclose insider trading policies, it may help demonstrate a rigorous compliance posture.
• Code of conduct. Because prediction market contracts may not always constitute “securities,” an insider trading policy may not be the most effective or appropriate vehicle. Moreover, certain portions of company insider trading policies often apply only to designated “covered persons,” whereas prediction markets can apply more broadly. Revising the code of conduct can capture the entire population of employees and address confidentiality, conflicts of interest and reputational risks beyond traditional insider trading.
• Address prediction markets in both the code of conduct and insider trading policy. Companies may prefer a dual-track approach: a broadly applicable code of conduct provision to reach all personnel and a more detailed insider trading policy update for directors, officers, employees and other covered persons subject to trading controls. Companies taking this approach should harmonize definitions, approval processes, reporting channels and disciplinary consequences across the relevant policies.
• Adopt a prohibition or standalone policy. Companies with heightened risk profiles may prefer a separate policy or blanket prohibition addressing the use of nonpublic information obtained through employment or other company relationships in any prediction market, whether or not the contract relates directly to the company’s securities.

Assess Scope of Coverage for Compliance
Insider trading policies often focus on securities-related activity involving MNPI. Prediction markets broaden the risk because employees may possess operational, product, regulatory, customer or transaction information that could move an event contract. Companies should therefore consider whether prediction market restrictions should apply firmwide through a code of conduct or standalone policy, or whether a narrower covered-person framework is sufficient for their risk profile. Companies may wish to consider the following elements as part of the policy evaluation:

1. Terminology. Clearly define “prediction markets” and “event contracts,” and consider including examples of covered platforms and contract types.
2. Scope of coverage. Decide whether to prohibit prediction market participation altogether, require pre-clearance for certain trades, require disclosure of prediction market accounts, or limit restrictions to contracts tied to company-related events or events of which the employee is aware as a result of their employment, or information and events the employee can influence.
3. Prohibit misuse of MNPI and confidential information. Expressly prohibit employees from (mis)using material nonpublic or confidential information relating to the company, its customers, clients, partners or counterparties, or information obtained through an individual’s employment (including with respect to competitors or companies in adjacent industries) in connection with prediction market trading. The policy should also address tipping, coordinated trading, and trading through family members, controlled entities, or other intermediaries.
4. Expand scope of MNPI. Review and expand the scope of MNPI to encompass information about significant events, such as clinical trial results or announcements, regulatory approvals, litigation or regulatory investigations or the outcomes thereof, product development or announcements, senior management transitions, privacy or cybersecurity incidents, or other significant business or industry developments, that could influence prediction market outcomes.
5. Pre-clearance and trading windows. Evaluate whether existing pre-clearance procedures and trading windows or blackout periods should be revised to extend to prediction market contracts tied to the company, its securities, its publicly reported metrics, or other events that could be affected by employees’ nonpublic information.
6. Update training. Provide periodic employee training with respect to updated compliance policies and procedures incorporating prediction market restrictions. While it is of course important to onboard new employees appropriately, it is equally important to retrain existing employees to ensure they understand the risks associated with prediction markets.

Policy Considerations
Companies may wish to consider the following when updating or implementing policies to address prediction market risks:

Definitions. Provide clear definitions for key terms and the intended scope of such terms, such as “Prediction Market,” “Event Contract,” “Company Information,” etc., to provide clarity on the intention and scope of the policy. For example, should the definition of “Company Information” be expanded to capture additional circumstances which may be more conducive to prediction market trading?

Trading Restriction. Consider the appropriate scope and specifics of trading restrictions. For example, should a blanket broad prohibition apply across the entire company and would this depend or change depending on the size of the company and/or the nature of information access and flow within the company? Should there be a pre-clearance process for a subset of individuals and if so, in what circumstances?

Prohibition on Tipping and Other Information Sharing. Provide clear examples of how tipping in the traditional insider trading context could apply in a prediction market context where the issue may not be as obvious as a classic case of MNPI and insider trading.

Monitoring Practices. Evaluate the practical aspects of monitoring prediction market activity and policy compliance. For example, should there be a mandatory notification period or should employees be required to provide certain account information, statements, certifications or other records upon request, subject to applicable law? What are the related privacy and confidentiality considerations?

Reporting and Escalation; Certification; Disciplinary Consequences. Consider implementing reporting and escalation procedures and determine appropriate disciplinary measures in the event of a violation and whether such measures will be scaled depending on the circumstances of the violation.

The above suggestions are illustrative only and any provisions or policy should be adapted to a company’s industry, workforce, risk tolerance and existing compliance infrastructure.

Additional Considerations

Scope of Prohibition
Companies should consider whether to impose a complete ban on all prediction market participation or whether to implement a more targeted scope with respect to covered persons, nature of the restrictions, and/or prohibited subject matters for event contract trading. For example, prohibited event contracts may include those involving whether a company will secure a major contract by a certain date, when the FDA may approve a new drug candidate, or when a significant contract or strategic transaction may occur.

Monitoring Challenges
Prediction-market trading poses monitoring challenges that existing securities trading processes and controls may not capture. For example, brokerage account feeds, restricted lists and pre-clearance systems typically focus on securities accounts, while event contract accounts may not be covered by such systems. Companies should consider whether account disclosure, certifications, pre-clearance or other controls are achievable or sufficient, and more generally, any other practical considerations in connection with effectively policing employee trading in prediction markets.

Reputational Concerns
Prediction markets also raise reputational concerns. For example, using information for personal gain in an event contract, even if the information is not MNPI, can still breach duties of confidentiality and create reputational risk for the company.

Implications on Company Culture
Companies benefit when employees can freely share ideas, collaborate across teams and openly exchange information. When implementing compliance protocols to address evolving risks relating to the misuse of confidential or market-sensitive information, companies should also be mindful of the potential impact such measures may have on company culture. Overly restrictive practices may discourage the culture of collaboration, cross-functional communication, and information-sharing that supports innovation, problem-solving, and efficient decision-making. As a result, companies should seek to balance appropriate compliance safeguards with maintaining a culture of productive internal collaboration and communication.

Our Capital Markets and Public Companies and Corporate Investigations & White Collar Defense teams are actively advising clients on the foregoing matters. For more information, please contact us for assistance.

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Frequently Asked Questions—Prediction Markets

Q: What are prediction markets?
A: Prediction markets are online platforms that allow users to buy or sell contracts—commonly called “event contracts”—with payoffs tied to whether a specific future event occurs. These platforms function like exchanges where participants trade on the likelihood of real-world outcomes rather than traditional securities.

Q: Can you give some examples of prediction market contracts?
A: Prediction markets cover a wide range of topics, including:

• Company-specific events (e.g., “Will company X receive a significant government contract by Y date?”)
• Earnings and financial results (e.g., “What will the CEO say on the earnings call?”)
• Stock price movements and M&A activity
• Election outcomes, geopolitical events and government policy decisions
• Sports outcomes and entertainment events, or other breaking news

Q: Why should companies and employees be concerned about prediction markets?
A: Prediction markets create legal, compliance, and reputational risks because employees with MNPI or confidential company information may be tempted to profit from event contracts tied to corporate outcomes. If company policies do not clearly address that activity, employees may misunderstand the rules, and the issuer or other entity may face questions about whether its compliance program adequately protects sensitive information.

Q: How does insider trading law apply if prediction market contracts are not securities?
A: Multiple legal theories may create enforcement risk, including general anti-fraud laws (e.g., mail and wire fraud statutes).

Q: What types of companies need to be concerned about insider trading in the prediction markets?
A:  Any organization whose employees possess sensitive information that could affect an event contract should evaluate whether its code of conduct, confidentiality policies, conflicts policies, employment agreements and training materials adequately address prediction market participation. That said, different types of entities may face different types of risk. SEC-regulated entities (e.g., broker-dealers, investment advisers, securities exchanges) have obligations under the federal securities laws to prevent the misuse of confidential information and prevent insider trading. Improper trading in the prediction markets by registered, supervised or associated personnel may be deemed compliance and supervisory failures. Public companies also have various obligations under the federal securities laws as well as rules of national securities exchanges to prevent improper conduct, including potential misuse of MNPI. And in certain cases, even private companies can face secondary liability-based claims for misconduct committed by their employees. Of course, all companies are subject to reputational risk in the event of a significant violation.

Q: What policy steps should companies take to address prediction markets?
A: Companies should choose the policy vehicle or approach that fits their workforce, risk profile and existing compliance structure and should carefully evaluate existing policies to determine any appropriate updates to the scope, monitoring and enforcement mechanisms to address compliance risks associated with prediction markets.