CFTC Secretly Approves Three Insider Trading Investigations into Polymarket
According to voting records obtained by Wired under the Freedom of Information Act, the Commodity Futures Trading Commission (CFTC) has secretly approved at least three insider trading investigations related to Polymarket event contracts, involving former President Biden's pardons, contracts related to the Iran war, and Google-themed contracts. CFTC Chairman Michael Selig has been accused of being friendly towards prediction markets during Trump's second term, and this approval marks a line drawn for enforcement on trading behaviors.
In early May, Selig approved the investigation into the Biden pardon contract. An anonymous trader had placed a bet of about $64,000 on pardon targets such as Jim Biden, Liz Cheney, Adam Schiff, and Adam Kinzinger just before the end of Biden's term, with odds approaching zero. On-chain analysis provided by Bubblemaps to NPR indicated total profits of about $316,000. Joshua Mitts from Columbia Law School stated that the probability of this occurring randomly is nearly zero. The second approval in the same month targeted contracts related to the Iran incident, occurring about two weeks after a 60 Minutes broadcast: a group of related accounts primarily engaged in military-related contracts around key events such as U.S. military actions, the Supreme Leader's resignation, and ceasefires, collectively profiting about $2.4 million with a win rate of approximately 98%.
The third approval in July pointed to Google-themed contracts. Paul Hayeck, acting director of the enforcement division, stated in an email that the investigation focuses on more individuals potentially engaging in insider trading regarding "Google's 2025 search rankings." This matter is adjacent to the publicly disclosed case of a Zurich Google security engineer, who was accused of using internal data to trade contracts on the year's hottest search figures, making about $1.2 million in a single transaction. The Southern District of New York and the CFTC have filed criminal and civil insider trading charges, respectively; Polymarket claims to cooperate with U.S. prosecutors and the commission, and describes itself as the only prediction platform to facilitate U.S. insider trading charges through cooperation. The Southern District of New York has a parallel investigation into related matters.
The commission's stance on prediction markets is not singular. In 2022, Polymarket paid $1.4 million to settle for operating without a license; last year, prosecutors and the commission temporarily withdrew their investigation into the platform. In June of this year, there were still reports of a "broad investigation" into the platform itself, with senators calling for stricter regulations on false betting promotions. Selig is also pushing for industry-friendly rules and has issued insider trading fines on other event contracts. The three secret authorizations had not been publicly disclosed until media uncovered them through information requests.
The market mechanism transforms non-public information into immediately payable prices for prediction contracts. Buyers hold information on pardon lists, military timelines, or search rankings; sellers provide low probabilities on the market. Funds flow from informed wallets into event contracts and then exit after results are announced. Beneficiaries include media and law enforcement that can turn abnormal win rates into programs and FOIA materials; the pressured party is the chairman who must sign between "encouraging innovation" and "commodity fraud provisions." Event-driven is the exposure of authorization orders, not new guilty verdicts.
When odds approach zero, the correct bet will lead to subsequent investigation authorization. The more prediction markets resemble futures, the less insider provisions seem decorative.
Source: Public Information
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The CFTC has included three previously circulated abnormal trades into its enforcement files through internal voting. The pardon market, war market, and search ranking market correspond to political decisions, military actions, and internal company metrics, with information sources not on-chain, but in the White House, war zones, and Google offices. Selig can write friendly rules for the industry, but the authorization orders prove that commodity fraud provisions still cover event contracts. The platform's cooperation with prosecutors against the Google engineer serves to document that "we are not a casino"; FOIA has dragged the other two unprosecuted cases from confidentiality into the headlines.
The capital path is information rent. A $64,000 principal rolled out $300,000, and related accounts rolled out $2.4 million, with returns coming from time differences rather than models. Prediction markets have transformed insider information that could only enter political donations or equity into binary contracts settled on an hourly basis. Money flows from informed accounts into market liquidity and exits after resolutions or airstrikes. The platform takes transaction fees, enforcement takes penalties, and traders take price differences. The Google case has demonstrated that a criminal path can be navigated, while the other two remain stalled at investigation orders.
Analogies include options before merger announcements, binary lotteries before drug approvals, and insider betting in sports. Prediction markets have expanded the subjects from company securities to pardons and wars, shifting regulatory oversight from the SEC to the CFTC. The industry phase is controlling the legal characterization of event contracts: is it speech, gambling, or commodities? Once the three investigations turn into prosecutions, pricing power shifts from platform rules to the federal court's definition of "material non-public information."
Structural changes indicate regulatory changes. The mechanism allows anyone who knows the outcome in advance to directly cash out without having to buy stocks first. The more the commission treats prediction markets like futures, the more insider provisions automatically attach. A friendly chairman and secret investigations can coexist: the former regulates industry access, while the latter governs who is using non-public information to exploit the market.
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When odds approach zero but are correct, the investigation order will follow.
Event contracts transform insider information from stocks into immediately payable contracts.
Being friendly to the industry does not equate to being friendly to abnormal win rates.