Gannon Ken Van Dyke watched the mission he had helped plan unfold in real time. Before the raid on Nicolas Maduro even launched, the U.S. Army Master Sergeant had already done something else with his classified foreknowledge: he placed roughly $34,000 worth of bets on Polymarket, a prediction market platform, on contracts tied to Venezuela and Maduro’s capture. By the time U.S. forces had their man, Van Dyke had cashed out for more than $400,000. He then tried to delete his account.
He did not succeed. Four months later, the Commodity Futures Trading Commission (CFTC) filed its first-ever insider trading complaint involving event contracts. The same day, the Southern District of New York (SDNY) unsealed a criminal indictment. Van Dyke now faces five counts: unlawful use of confidential government information under the Commodity Exchange Act, theft of government property, commodities fraud, wire fraud, and money laundering.
This case would have been notable on its own. What makes it a watershed is everything that surrounds it.
Prediction Markets: A Brief Primer for Litigators
Prediction markets are exchanges where participants trade contracts tied to the outcome of real-world events. The contracts are binary: they pay $1 if the specified event occurs, and zero otherwise. A contract priced at $0.62 implies a 62 percent market probability that the event will happen.
That structure makes prediction market contracts functionally identical to binary options – a well-established class of financial derivative. The pricing mechanics, information flows, and arbitrage dynamics across underlying markets are the same. As David Aron, a former CFTC attorney and co-author of a leading law review article on the subject, has observed (cited in Navesink’s March 2026 analysis) prediction-style contracts “may be characterized as binary options, other options, or other types of swaps” and fall squarely within CFTC regulatory jurisdiction when listed on a registered exchange.
Unlike equities, prediction market contracts have no issuer, no prospectus, and no quarterly disclosure cycle. The underlying is a fact about the world – whether a ceasefire holds, a leader falls, or oil breaches a price threshold. That distinction has direct consequences for how securities law doctrines apply – or fail to apply – when someone trades on advance knowledge of the underlying event. For a fuller treatment of how prediction market pricing connects to traditional financial instruments, including interest rate futures, energy markets, and volatility derivatives, see Navesink’s analyses on Prediction Markets and the New Insider Trading Problem and Litigation Risk During Global Shocks.
A New Kind of Insider Trading
Prediction markets have grown from novelty to institutionally significant venue. More than $60 billion in trading volume passed through these platforms in 2025 alone, and more than $1 billion has been staked on military decisions and outcomes in 2026. The three enforcement actions brought to date illustrate how different the exposure can be depending on who the insider is and where their duty lies.
Case A – The Soldier (Operation Absolute Resolve).
Van Dyke’s duty was unambiguous: it ran to the U.S. government and the public. He used classified intelligence about a Special Forces mission to bet on event contracts tied to Venezuela and Maduro. The CFTC invoked CEA Section 4c(a)(4) – the so-called “Eddie Murphy Rule”, which prohibits trading any swap on the basis of material nonpublic information obtained through government service – for the first time ever in an event contract case. The DOJ filed a parallel criminal indictment the same day. Van Dyke allegedly netted more than $400,000 and immediately tried to conceal his identity and delete his account.
Case B – The Nine Accounts (the Iran War pattern).
No individual has been charged, but the statistical evidence is striking (NY Times, CBS News). Data analytics firm Bubblemaps identified nine linked Polymarket accounts that netted more than $2.4 million betting on key moments in the U.S.-Iran war – the first strikes, the removal of Iran’s supreme leader, the ceasefire announcement – with a 98 percent win rate across more than 80 bets, frequently on longshots. The Anti-Corruption Data Collective (ACDC), in an independent April 2026 report analyzing all settled Polymarket markets, found that military and defense contracts show a longshot-bet success rate of 52 percent – far above the 35 percent ceiling that market prices imply. Federal investigators are also probing $800 million in oil futures bets placed fifteen minutes before President Trump announced ceasefire talks on Truth Social on March 23, with potential profits estimated at up to $80 million.
Case C – The Google Engineer (corporate insider, commercial data).
On May 27, 2026, the SDNY unsealed a complaint against Michele Spagnuolo, a 36-year-old staff information security engineer at Google, who allegedly accessed the company’s unreleased “Year in Search 2025” data and used it to place bets under the name “AlphaRaccoon” on Polymarket contracts tied to which celebrities would be most-searched on Google (Al-Jazeera). Spagnuolo allegedly wagered $2.7 million across 25 outcomes, netting more than $1.2 million in profit. He faces charges of commodities fraud, wire fraud, and money laundering. Google placed him on leave and confirmed he had accessed marketing data available to all employees but used it in breach of company policy.
Three cases, three different fact patterns, three different sources of alleged duty. Van Dyke’s duty ran to the U.S. government; Spagnuolo’s ran to his employer; the nine anonymous Iran-war traders’ duty, if any exists, remains unidentified. That variety is precisely the problem – and the opportunity for counsel. The Spagnuolo case is particularly significant because it extends the theory beyond government employees with security clearances to ordinary corporate insiders – the same population already subject to SEC enforcement on equities. Any employee with access to proprietary data that could resolve a prediction market contract now faces potential exposure under the CFTC‘s theory.
When Bettors Threaten Journalists: A New Form of Market Manipulation
The misconduct does not stop at information asymmetry. Emanuel Fabian, a military correspondent for the Times of Israel, reported in March 2026 that an Iranian missile had struck an empty forest near Jerusalem. Shortly after publication, he began receiving messages from Polymarket bettors who had wagered that the missile would enter Israeli territory and stood to lose that bet if his reporting stood. One message read: “You’re going to make us lose $900,000. And we’ll invest even more than that to finish you.” The sender included details about Fabian’s family members. Polymarket banned the accounts involved.
This is not insider trading in any conventional sense. Van Dyke and Spagnuolo profited from knowing the future in advance. Fabian’s harassers were trying to change the future – or at least the reporting of it – to prevent a bet from settling against them. The target was not the market price; it was the underlying fact that would resolve the contract. Under the Commodity Exchange Act‘s anti-manipulation provisions (CEA Section 6(c)(1)) and the CFTC‘s broad Rule 180.1, any attempt to create an artificial settlement condition – including interfering with the information that settles a contract – falls squarely within the scope of market manipulation.
The securities markets have seen this instinct before, though it typically runs in the opposite direction. In 2001, Bethany McLean published “Is Enron Overpriced?“ in Fortune, questioning the company’s financial disclosures and suggesting its then-record stock price was unjustified. Enron’s response was swift: CFO Andrew Fastow flew to New York to pressure McLean and her editors directly, while CEO Ken Lay complained to Fortune‘s managing editor at a conference in Aspen. McLean refused to back down. The article ultimately helped expose one of the largest accounting frauds in American history.
The structural difference is instructive. In the Enron case, the subject of the reporting – a company with a long position in its own stock – tried to suppress negative coverage to prevent a price decline. The manipulation target was the market’s information environment. In the prediction market cases, traders threatened the journalist not because they held equity in the story’s subject, but because accurate reporting would resolve a binary contract against them. The mechanism is the same – use pressure to distort information that moves a price – but the prediction market version is harder to police: there is no issuer, no corporate relationship, and no traditional fraud theory that maps cleanly onto an anonymous bettor threatening a foreign journalist over a military news report.
Both scenarios share an enforcement gap. In securities markets, Rule 10b-5 and related anti-manipulation provisions cover schemes to create artificial prices through information suppression. In prediction markets, the equivalent legal theory – manipulation of the underlying fact rather than the market price – is untested. The CFTC has the authority under CEA Section 6(c) to act, but no case has yet established what a successful prosecution of prediction market outcome manipulation looks like. That gap is where the next wave of enforcement, and the next wave of expert witness demand, is likely to emerge.
A Multi-Front Regulatory Response
Enforcement has moved fast, from multiple directions at once.
At the federal level, the CFTC has asserted exclusive jurisdiction over prediction markets under the Dodd-Frank Act and is actively pursuing insider trading cases. The SDNY, under U.S. Attorney Jay Clayton, has publicly indicated it expects to bring additional criminal fraud prosecutions – and has already done so twice in six weeks.
The exchanges themselves serve as a first line of enforcement. Kalshi imposed multi-year suspensions and financial penalties on three political candidates who bet on their own election outcomes, with trades as small as $100 (CNN Politics). The CFTC and Kalshi jointly announced a coordinated wave of additional enforcement actions in April, a public-private partnership signaling Kalshi’s institutional interest in policing its own market (Lowenstein Sandler).
The state-level picture is more turbulent. More than 20 lawsuits and cease-and-desist actions are pending nationwide, with a 38-state coalition and a bipartisan group of 41 state attorneys general arguing that prediction market contracts are indistinguishable from sports betting and should be subject to state gambling law. The CFTC has responded by suing Arizona, Connecticut, Illinois, and New York. The Third Circuit ruled 2-1 in favor of Kalshi and federal preemption in April. The Ninth Circuit, in oral arguments the same month, was conspicuously skeptical, with one judge calling the CFTC’s position “sophistry to the Nth degree.” A Supreme Court resolution by 2027 looks increasingly likely.
A Legislature Catching Up
Congress has introduced at least seven major bills targeting prediction markets since January 2026, with additional proposals advancing through committee (Venable). The bipartisan PREDICT Act (H.R. 8076) would bar the President, Vice President, members of Congress, their families, and senior officials from trading event contracts tied to specific political events. The End Prediction Market Corruption Act (S. 4017) would prohibit those officials from trading any event contracts. The Stop Corrupt Bets Act would ban contracts tied to elections, war, and government activity entirely.
At the state level, California, Illinois, and New York have issued executive orders prohibiting state employees from using nonpublic information in prediction market trading. The White House issued a memo in March reminding all staff that doing so is a criminal offense.
None of these measures have become law. But their accumulation signals where the political consensus is heading.
The Legal Framework and Its Gaps
For attorneys advising clients in this space, the most important feature of the current landscape is how much remains unresolved (Kobre & Kim, Ballard Spahr).
The duty question
The Van Dyke prosecution establishes that the government can bring commodity fraud and insider trading charges against a government employee who misappropriates classified information to trade event contracts. The Spagnuolo case extends that theory – tentatively – to corporate employees who misappropriate proprietary employer data. But both cases feature a clear, identifiable duty relationship. The anonymous Iran-war accounts present a harder question: to whom is the duty owed when trading on a decentralized, anonymous prediction market? There is no identifiable counterparty in the way there is in a stock transaction.
What is MNPI?
Material nonpublic information presents similar challenges. What makes information “material” to a binary contract on a geopolitical event or a search engine’s year-end rankings? How do you establish market-moving significance in a venue where a single large order can shift implied probabilities? And if the information was non-proprietary – even if difficult to obtain – it may not meet the legal threshold for “nonpublic” at all. Criminal wire fraud prosecutions face an additional constraint: recent case law has narrowed what counts as “property” under criminal fraud statutes.
Damages?
Damages and disgorgement present further complications. With no issuer and anonymous counterparties on a blockchain-recorded platform, standard securities damages models do not apply. Reconstructing what the market would have done absent the trading, and quantifying harm to a decentralized counterparty pool, requires a different kind of financial expert than securities litigation has typically called for.
What Defense Counsel Should Know
Jurisdiction is a live battleground and should not be conceded at the outset of any investigation. Whether a particular event contract constitutes a derivative under the Commodity Exchange Act may not be straightforward, especially for non-U.S. companies and traders. Pressing the issue can narrow an inquiry and create negotiating leverage.
Many investigations in this space begin at the platform level, before any government referral. Early engagement with the exchange – advancing an affirmative factual narrative and providing a legitimate trading rationale – can shape the nature and direction of any referral that follows. Moving the market alone does not establish illegal manipulation under the law. And if the information allegedly misused was genuinely non-proprietary, challenging the “nonpublic” element may be viable. Because the applicable legal standards remain largely untested, defaulting to cooperation where potential credit is uncertain may not be optimal. Strategic engagement from the outset is more effective than reactive engagement after the facts have already been framed.
The Bottom Line
Prediction markets are not going away, and the misconduct they generate is more varied than the term “insider trading” suggests: advance information, pattern trading on classified intelligence, corporate data misappropriation, and now direct threats against journalists to change the facts that settle contracts. Regulators, prosecutors, legislators, and the exchanges themselves have all signaled that each of these forms of misconduct will be pursued seriously – even as the precise legal framework for doing so continues to take shape. For attorneys advising financial institutions, corporations, government contractors, and senior executives, prediction market exposure now belongs on the compliance checklist. The first wave of enforcement is already in the courts. The doctrine, and the case law, will follow.
Sources
- CFTC and Kalshi Announce Enforcement Actions Targeting Prediction Markets – Lowenstein Sandler LLP (April 24, 2026)
- Suspected insider accounts net $2.4 million on Polymarket Iran war bets with 98% win rate – CBS News / 60 Minutes (May 17, 2026)
- Insider Risks in Polymarket Political Markets – Anti-Corruption Data Collective (April 30, 2026)
- Combatting Investigations & Enforcement Arising Out of Prediction Markets – Kobre & Kim (April 7, 2026)
- Prediction Markets: Emerging Compliance Considerations for Companies and In-House Counsel – Ballard Spahr (May 6, 2026)
- Google employee charged with insider trading over Polymarket bets – Al-Jazeera (May 28, 2026)
- Google engineer charged in $1.2M Polymarket case – Axios (May 27, 2026)
- Dozens of Polymarket Bets Show Signs of Insider Trading, The Times Finds – The New York Times (May 13, 2026)
- Kalshi prediction site suspends three political candidates for betting on their own races – CNN Politics (April 23, 2026)
- Prediction Market Legislation Continues to Evolve as Congress Advances New Bills – Venable, March 31, 2026.
- CFTC Charges Ireland-based “Prediction Market” Proprietors Intrade and TEN with Violating the CFTC’s Off-Exchange Options Trading Ban and Filing False Forms with the CFTC – CFTC Press Release (November 26, 2012)
- Is Eron Overpriced? – Fortune Magazine, Bethany McLean, (March 5, 2001)
Related Navesink articles
- Prediction Markets and the New Insider Trading Problem – Navesink International (March 28, 2026)
- From War Zones to Courtrooms: How Geopolitics Drives Litigation – Navesink International (March 8, 2026)