Washington’s scrutiny of the wild world of prediction markets is about to come to a head.
The landmark federal case against a U.S. soldier who allegedly used confidential information to trade on the capture of then-Venezuelan leader Nicolás Maduro is ratcheting up calls for new guardrails around the fast-growing prediction markets.
Lawmakers have voiced alarm that the alleged trades could have endangered a military operation with potentially fatal consequences. The charges came just days after a leading market banned several congressional candidates for betting on their own elections.
“This is going to be the top emerging issue” in finance, said House Financial Services Chair French Hill, an Arkansas Republican whose committee plays a critical role in overseeing the regulation of financial markets. Members are trying to get up to speed on the issue and “not trying to prejudge,” he said at an event Friday. “We’re all going to be dealing with it.”
The episodes could prove to be a tipping point for Congress, regulators and President Donald Trump’s administration to impose new guardrails on a deep-pocketed industry that has quickly become a Washington powerhouse.
Prediction markets like Polymarket and Kalshi are a type of financial exchange that offer users Cheesecake Factory-like menus of wagers that span U.S. elections, Major League Baseball games and beyond.
The companies have moved aggressively in recent years to build out their networks of political and financial advisers, including Donald Trump Jr. The president’s eldest son is an adviser to both companies, while the venture capital firm he works at, 1789 Capital, is a Polymarket investor. Both Polymarket and Kalshi have also attracted major support from Wall Street and Silicon Valley heavyweights, who have helped boost their valuations to meteoric highs.
Insider trading on the prediction markets has been top of mind for officials across the political spectrum in recent months, following a string of well-publicized and seemingly suspicious bets on the Iran war, Maduro’s capture and even the weather in Paris.
Illinois Gov. JB Pritzker earlier this week signed an executive order expressly banning state officials from using privileged information to trade on the markets, while New York Gov. Kathy Hochul did the same the next day. A White House official, granted anonymity to speak freely, said ethics rules bar government employees from using privileged non-public government information for personal gain, including through betting. And Wall Street enforcers have been warning that they were preparing to crack down.
But the arrest of a U.S service member in connection with bets on Polymarket tied to Maduro’s downfall could put new pressure on policymakers, according to more than a half dozen lawmakers, former regulators and industry officials.
On Thursday, the Justice Department and the Commodity Futures Trading Commission charged Gannon Ken Van Dyke, a 38-year-old master sergeant who allegedly made more than $400,000 on wagers tied to Maduro’s capture. Prosecutors said Van Dyke was involved in the operation’s planning.
“This is just something that really has to be locked down,” former CFTC Commissioner Christy Goldsmith Romero said. “We can’t have insider trading in these markets.”
Prediction market backers have been quick to tout the Van Dyke charges as evidence that the industry and regulators are properly — and forcefully — policing the markets. Insider trading is already prohibited on CFTC-regulated markets, such as Kalshi, they say. And it’s not unusual in other parts of Wall Street, where it is often also caught after the fact: The oil futures market has drawn similar concern about various well-timed bets in recent weeks.
But an industry official, who was granted anonymity to speak candidly, said the prediction markets “need to reflect, take their medicine, adjust and evolve.”
“Some of these contracts could foreseeably have violence associated, which full stop should not be listed,” the official said. “However, the idea that you would just get rid of any geopolitical contract that could be perceived by anyone as sensitive, that’s not going to be on the table. Now is the time for cleaner and clearer self regulation.”
Lawmakers are already jumping on the news. In a statement, Sen. Todd Young, an Indiana Republican who has introduced bipartisan legislation to bar everyone from the president to congressional staffers from trading on the markets, told POLITICO that he was “glad to see more people taking these insider trading concerns seriously.”
“This selfish act could have put other brave servicemembers in harm’s way,” Young said. “We need to implement protections to prevent public servants from being able to profit off of insider information.”
Sen. Bernie Moreno, a Republican from Ohio, said Friday that he will introduce a resolution proposing a ban on U.S. senators from trading on the prediction markets. And Sen. Richard Blumenthal, a Democrat from Connecticut, told POLITICO before the Van Dyke charges that prediction markets “will be an area” of focus should Democrats take control of Congress this November.
Even Trump himself has voiced concern. Speaking to reporters in the Oval Office shortly after the charges were announced, he said “the whole world, unfortunately, has become somewhat of a casino” before mentioning “predictive markets.”
“It’s a crazy world,” he said. “It’s a much different world than it was.”
White House spokesperson Davis Ingle said in a statement that while Trump “seeks a strong and profitable stock market for everyone, members of Congress and other government officials should be prohibited from using nonpublic information for financial benefit.”
Others are urging caution. In an interview last month, Rep. Dusty Johnson of South Dakota, a Republican on the House Agriculture Committee, said he wants members to “try to come together to all agree on the facts, understand the legal basis for these products and to chart together a course for where we want to go.”
CFTC Chair Michael Selig, who has been a major booster of the prediction markets, said in a statement after the Van Dyke charges that he has “been crystal clear that anyone who engages in fraud, manipulation, or insider trading in any of our markets will face the full force of the law.” And the companies themselves have already rolled out various measures intended to thwart insider trading on their platforms.
On Friday, in a post on X, Polymarket CEO Shayne Coplan wrote that his company referred the trading on Van Dyke’s account to authorities and cooperated throughout the investigation.
“This happens constantly behind the scenes, despite what many are led to believe,” he wrote, adding that Polymarket’s cryptocurrency underpinnings allow additional transparency into the trading on its platform. “Every trade is public, permanent, and auditable. Bad actors leave a trail.”
Van Dyke was charged with violations of the Commodity Exchange Act, wire fraud and unlawful monetary transactions. Each carries a varying maximum sentence of between 10 and 20 years, according to prosecutors.
He was able to make the trades through Polymarket’s international platform, which is not overseen by the CFTC nor supposed to be open to U.S. customers under the terms of a 2022 settlement with regulators. Van Dyke allegedly concealed his location using a virtual private network, allowing him to trade on Polymarket, according to the complaint.
A person familiar with Polymarket’s operations, who was granted anonymity to speak freely, said the use of VPNs on its platform “is an area of continued focus” for the company. Polymarket, the person added, is currently working to fully roll out its CFTC-regulated exchange and that “the last thing in the world the company wants is to do something that’s going to prevent it from being able to operate fully in the U.S.”
Earlier this week, Kalshi, which is regulated by the CFTC, issued five-year bans against three congressional candidates who had traded on their own elections against the exchange’s rules. Kalshi spokesperson Elisabeth Diana said in a statement that Kalshi identifies its customers, bans insider trading and has substantial market surveillance on its platform. “We’re regulated in the U.S. and have strict rules to keep our customers safe,” she added, noting that “regulation matters.”
And that, combined with the Van Dyke case, is a clear sign to some that regulators, prosecutors and the industry itself are moving quickly to clamp down.
“This puts the meat on the bones” of regulators’ warnings, said Liz Davis, a former DOJ and CFTC attorney who is now a partner at Davis Wright Tremaine. “It certainly sends the shot across the bow.”
Katherine Hapgood and Jasper Goodman contributed to this report.
