CFTC makes insider trading in prediction markets an enforcement priority

The US Commodity Futures Trading Commission (CFTC) treats insider trading in prediction markets as an enforcement priority, according to David Miller, director of the agency's Division of Enforcement. Miller, who was appointed earlier this year by CFTC Chairman Michael Selig, said the division's focus is on fraud, abuse and manipulation. He said that before his appointment there had been confusion over whether insider trading and market manipulation rules applied to prediction markets.

In April, the CFTC brought its first insider trading case involving prediction markets, against US Army Master Sergeant Gannon Ken Van Dyke. The agency alleges he used confidential information about the operation to capture former Venezuelan President Nicolas Maduro to earn more than $400,000 on Polymarket. Van Dyke, who helped plan and carry out the raid, has pleaded not guilty to charges including unlawful use of confidential government information for personal gain. He is free on bond, and his federal criminal trial is scheduled to begin on 7 December.

May brought a further enforcement action, this time involving Google software engineer Michael Spagnuolo. According to the source, the CFTC and the U.S. Department of Justice brought civil and criminal cases in parallel against him. He stands accused of trading on Polymarket with confidential corporate information. The complaints put his risk at $2.75 million spread over several contracts, with profits of about $1.2 million. Miller said neither case has concluded and both men reject the allegations.

An advisory from the CFTC's Division of Enforcement, dated February 25, stated that it is wrong to think insider trading laws have no bearing on event contracts and prediction markets. Miller told the Next Predict Summit audience that the agency had spent more than a decade bringing insider trading cases, and he described the Van Dyke matter as the first involving prediction markets.

Speaking at the Next Predict Summit in New York, Miller was asked by CNN senior reporter Marshall Cohen whether Maduro could have traded on his own capture without necessarily breaching federal insider trading law. Miller said such a trade might have broken an exchange's rules or federal law, adding: "That doesn’t mean you’re breaking federal law." He said insider trading law applies to the commodities and derivatives markets, and that insider trading is essentially about a breach of duty involving material, nonpublic information.

The November 3 midterms are drawing near, and Cohen said prior controversies have included candidates who wagered on their own contests through prediction markets, which then penalised them. Miller was asked whether the agency was looking into midterm activity for possible manipulation or insider trading. He would not address particular matters, but he said the agency does investigate, has investigated, and may have open investigations concerning candidates who traded contracts tied to their own elections.