On April 23, 2026, the U.S. Commodity Futures Trading Commission (CFTC) the filing of its first insider trading enforcement action involving event contracts for the misuse of government information against an active-duty service member in the U.S. Army who allegedly used classified nonpublic information to trade on U.S. operations to capture the former Venezuelan President through “Operation Absolute Resolve.” That same date, the U.S. Attorney’s Office for the Southern District of New York brought criminal charges against this individual in the same court, alleging conduct similar to that alleged in the CFTC’s complaint. This article provides an overview of the predictions markets and insider trading as well as the buildup to the CFTC’s first enforcement action in this space.
What Are Prediction Markets and Event Contracts?
Prediction markets, which allow consumers to enter into “event contracts” regarding the outcome of future events, have experienced unprecedented growth in recent years. Currently, only a limited number of major prediction platformsoperate nationally as exchanges regulated under the U.S. Commodity Exchange Act (CEA), but they have attracted substantial capital and growing public interest, engagement, and utilization. Along with this growth, prediction markets have started to present significant regulatory issues and risks. Among these is the potential misuse of material nonpublic information to generate trading profits in ways that raise insider trading concerns, as discussed herein.
At a basic level, prediction markets allow traders to enter into contracts whose value depends on the occurrence of a specified future event. Event contracts are generally listed as swaps by exchanges regulated as designated contract markets under the CEA and the jurisdiction of the CFTC, which are not regulated as securities exchanges under the federal securities laws. The range of events offered on these exchanges is broad, and legal challenges have been raised as to whether certain contracts are in fact swaps or are legally impermissible as contrary to the public interest. Depending upon a contract’s terms, there could be issues whether a particular contract could be classified as security-based swap product that the Securities and Exchange Commission (SEC) regulates.
Some markets focus on sporting events or political elections, where the principal integrity concern is the risk of manipulation of the underlying event itself, for example, athletes intentionally throwing games. Other markets, however, involve outcomes that are substantially determined by internal governmental, corporate, or other institutional activities.
CFTC Enforcement Authority Regarding “Insider Trading”
Prior to 2010, the CEA’s only insider trading prohibition related to misuse of information by the CFTC’s own personnel and personnel of the exchanges and self-regulatory organizations overseen by the CFTC. (See CEA §§ 9(d) and 9(e), 7 U.S.C. §§ 13(d) and 13(e).) Then, in 2010, Section 753 of the Dodd-Frank Act amended the CEA to prohibit fraud and manipulation “in connection with any swap, or a contract of sale of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity” in contravention of rules adopted by the CFTC. In 2011, the CFTC finalized Rule 180.1, which prohibits fraud or deception in connection with swaps, interstate commodity sales, and futures traded on or subject to the rules of registered entities.
When adopting Rule 180.1, however, the CFTC made clear that “a person who engages in deceptive or manipulative conduct in connection with any swap, or contract of sale of any commodity in interstate commerce, or contract for future delivery on or subject to the rules of any registered entity, for example by trading on the basis of material nonpublic information in breach of a pre-existing duty (established by another law or rule, or agreement, understanding, or some other source), or by trading on the basis of material nonpublic information that was obtained through fraud or deception, may be in violation of final Rule 180.1.” (See CFTC, Final Rule: Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices and Prohibition on Price Manipulation, 76 FR 41398, 41403 (July 14, 2011)). At the same time, however, the CFTC stressed that “it is not a violation of final Rule 180.1 to withhold information that a market participant lawfully possesses about market conditions. The failure to disclose such market information prior to entering into a transaction, either in an anonymous market setting or in bilateral negotiations, will not, by itself, constitute a violation of final Rule 180.1.” (See Id. at 41402.) Consistent with its guidance when adopting Rule 180.1, the CFTC has relied upon Rule 180.1 to bring insider trading actions under a misappropriation theory.
The expansion of the CFTC’s anti-fraud authority was not the only provision in Dodd-Frank that involves insider trading. Dodd-Frank also expanded the existing prohibition on misuse of nonpublic information by personnel of the CFTC, self-regulatory organizations, and exchanges to apply to misuse of nonpublic information from any federal government source. This provision targets government personnel who impart confidential government information “in [their] personal capacity and for personal gain with intent to assist another person, directly or indirectly, to use the information to enter into” trades CEA § 4c(a)(4)(A), 7 U.S.C. § 6c(a)(4)(A). It also targets persons who receive such confidential information imparted by government employee and trade on that information. (See CEA § 4c(a)(4)(B), 7 U.S.C. § 6c(a)(4)(B)). Finally, Dodd-Frank also made it unlawful to “steal, convert, or misappropriate” confidential federal government information in order to use such information (or assist others) to enter into trades. (See CEA § 4c(a)(4)(C), 7 U.S.C. § 6c(a)(4)(C)). As an aside, this section of the CEA is also known as the “Eddie Murphy Rule,” a reference to the 1980’s comedy classic “Trading Places,” starring him and Dan Aykroyd that involves their trading on a nonpublic government report for frozen concentrated orange juice futures (4-star comedy classic, btw). The CFTC’s action against the active service Army member is the first time the CFTC has used this “Eddie Murphy Rule” to bring charges based on the misuse of government information
Insider Information Risk in Modern Prediction Markets
The defining challenge in many contemporary prediction markets is that, for certain event types, someone may know the answer in advance and whether using such knowledge to trade constitutes a violation of the concepts for misuse of information under the CEA framework. This creates inherent information asymmetry between insiders with access to that data, on one hand, and retail or other traders operating without it, on the other. Trading based on nonpublic information alone generally does not constitute a violation under the CEA framework, provided the information is legally obtained. Prohibited insider trading activity, however, typically involves (i) insiders with lawful access to material nonpublic information that they misappropriate and utilize to their informational and financial advantage in breach of a pre-existing duty or (ii) persons trading on material nonpublic information they obtain through fraud or deceit, which is distinct from another type of insider trading recognized in the securities industry that is known in the securities industry as the “classical” theory and involves corporate insiders and fraud on the market. Notably, “classical” theory insider trading involves securities laws and is not relevant to the CEA.
The risks described above are not merely theoretical but may implicate core regulatory requirements governing how prediction markets are structured and operated. Under the CEA, designated contract markets are subject to core principles requiring that listed contracts are not readily susceptible to manipulation and that exchanges maintain surveillance to detect abusive trading practices. These obligations extend to the design and listing of event contracts, requiring exchanges to assess whether informational asymmetries, such as those created by insider access, undermine market integrity. As a result, insider-information risk in prediction markets is not merely a matter of platform policy but a core regulatory concern embedded in the CEA framework.
Platform-Imposed Restrictions and Their Limits
Against this regulatory backdrop, prediction market platforms have adopted participation restrictions and eligibility rules designed to mitigate insider-information risk. For example, some platforms have restricted participation in certain event contracts by individuals with potential access to nonpublic information. For example, members of the Academy of Motion Picture Arts and Sciences, who are involved in the Oscars voting process, are prohibited from trading on Oscars award outcomes.
For CFTC-registered designated contract markets, these types of restrictions operate within a defined regulatory framework. Designated Contract Markets (DCMs), which are CFTC-regulated exchanges, are required to provide public notice of their rulebooks and are subject to ongoing obligations under the CEA to monitor trading activity and enforce rules designed to prevent manipulation and abusive practices.
Enforcement’s Recent Prioritization
Pursuant to the CEA regulations summarized above, the CFTC has regularly leveraged its authority to regulate markets and prohibit fraudulent trading activity. Most recently, the CFTC issued an enforcement advisory in February 2026 where it reminded market participants of its authority to “police” a broad range of illegal trading practices within prediction markets, including insider trading, pre-arranged or wash trading, disruptive trading, and other forms of fraud or manipulation. The CFTC emphasized its intent to enforce federal anti-fraud provisions on trading activity occurring in prediction markets stating, “the [Enforcement] Division will investigate and prosecute violations, as it always has with respect to conduct occurring on DCMs.”
In March 2026, the CFTC issued an Advanced Notice of Proposed Rulemaking seeking public comment on whether new or amended regulations should govern prediction markets. The CFTC specifically requested input on the application of CEA core principles, the permissibility of certain event contracts, and whether particular contracts may be contrary to the public interest. Focusing back on enforcement and insider trading in prediction markets, on March 31, 2026, the CFTC Director of the Division of Enforcement gave a in which he stated:
First, we will focus closely on insider trading. Insider trading is illegal under the CEA and our regulations in all our markets—including the prediction markets. It has serious consequences for market integrity and trust. It is not a victimless offense. As I will discuss later, our insider trading authority is about the misappropriation of material non-public information—and thus involves the use of information in violation of a duty owed to the source of that information.***
Unfortunately, a myth has spread that insider trading is permissible—even encouraged—in the prediction markets. Prominent individuals in finance, the media, and on social media have contended that insider trading law does not apply in these markets. Some have suggested that insider trading is inevitable or beneficial because it gives people with confidential information a financial incentive to trade on it, thus releasing the information to the public. These comments all suggest that insider trading is an important and acceptable part of the prediction markets ecosystem.
Not so. Insider trading in the commodity futures and swap markets is prohibited by the CEA and relevant CFTC regulations. And this is not some abstract theory; the prohibition on insider trading in commodity markets involves a straightforward application of the law.
The CFTC is not the only federal body scrutinizing trading activity within this nascent market. Recent public statements by the U.S. Attorney’s Office for the Southern District of New York (USAO-SDNY) have indicated that federal prosecutors are closely scrutinizing potential illicit trading activities in prediction markets, signaling a willingness to explore criminal theories. Thus, it is not a surprise to see the close coordination between the CFTC and the USAO-SDNY with this first action.
Summary of the CFTC’s First Case
According to the CFTC’s complaint, from at least December 2025 through January 2026, the respondent was involved in the planning and execution of “Operation Absolute Resolve.” As a result of this involvement, he acquired nonpublic classified or sensitive information concerning the “Operation.” As a service member, he owed to the U.S. government and the American people a duty of trust and confidentiality. In violation of those duties, between December 30, 2025, and January 2, 2026, this service member used that information to purchase more than 436,000 “Yes” shares of the “Maduro Out by January 31, 2026?” contract listed on a predictions market platform. The complaint further alleges that the respondent, who used the Polymarket handle “Burdensome-Mix,” generated more than $404,000 in profits through his trading. The CFTC filed this as a litigated action. Thus, while this CFTC action is incredibly significant and novel for the reasons described herein, if this defendant litigates through trial or beyond, then the “final word” on this matter will not be left to the CFTC but rather the judicial system.
Conclusion
Prediction markets are expanding rapidly, and with that expansion comes heightened exposure to insider-information risk. As platforms increasingly list contracts tied to corporate-controlled (or other controlled) outcomes, amongst other reasons, the potential for illicit profit based on nonpublic information grows. Addressing these risks will require a combination of platform-level governance, enhanced surveillance, and thoughtful regulatory engagement to ensure market integrity keeps pace with innovation.
