Federal investigators reportedly met recently with Polymarket representatives to explore whether certain trades on the prediction market breached insider trading laws.
CNN reports that the heads of the securities and commodities fraud unit of the U.S. attorney’s office for the Southern District of New York met with Polymarket representatives to discuss “potential misconduct” regarding prediction market trading.
The report said that the prosecutors are focusing on “lucrative trades” that appeared to resemble insider activity, including trades made on the capture of Venezuelan President Nicolás Maduro.
In January, a newly created Polymarket account made $436,000 in profit from betting that Maduro would be removed as president of Venezuela — shortly before he was captured by U.S. forces. Observers have noticed further suspicious trading related to the war in Iran. The identities of the individuals behind these accounts are not known.
“As a general matter, our office meets with market participants to discuss market activity and application of the law,” Nicholas Biase, a spokesman for the U.S. attorney’s office, said in a statement to CNN. “With regard to so-called ‘prediction markets,’ our office has made clear that various laws, including insider trading laws, anti-money laundering laws, laws prohibiting manipulation, and various anti-fraud laws are applicable to a wide range of observed activity.”
Suspicious trades on Polymarket global site
The trades in question took place on Polymarket’s global site, which is not under the jurisdiction of the Commodity Futures Trading Commission (CFTC) or any other U.S. regulators. The prediction market also operates a U.S. site, which only offers trading on sports.
While Polymarket’s global site is not regulated by the CFTC, U.S. individuals who trade on the site — which blocks U.S. IP addresses, but is still accessible via VPN — are still subject to the CFTC’s insider trading laws. Under these rules, not all trading with insider knowledge is automatically illegal, but trading on misappropriated information or in breach of a pre-existing duty would be against the law. Trades on a military operation would fall into this category.
Findings of insider trading would most likely mean consequences for the individual who placed the trades, rather than the platform as a whole.
No companies have been accused of wrongdoing, the report said.
“Polymarket sets, maintains, and enforces the highest standards of market integrity. We also proactively work with regulators and law enforcement to reinforce those standards,” Carissa Felger, a spokesperson for Polymarket, told CNN.
A Polymarket spokesperson did not immediately respond to InGame‘s request for comment.
Insider trading rules introduced last week
Last week, Polymarket put in place its first actual insider trading rules for its global site. Previously, market manipulation was banned, but insider trading — even for sensitive information — was not against any specific rules. It is not clear whether there is any link between the meeting with prosecutors and the rule change.
In February, Israeli authorities arrested two people for allegedly making bets on Polymarket using “classified information” involving “the occurrence of military operations, based on classified information to which the reservists were exposed as part of their military duties.”
