Key Takeaways
- “…there’s a myth in mainstream media…that insider trading doesn’t apply in the prediction markets,” CFTC Enforcement Director David Miller reportedly said adding “That is wrong.”
- “Our position is that event contracts are not gaming. The event contracts at issue are swaps. Insider trading law applies,” Miller reportedly said
According to Bloomberg, a top enforcement official at the CFTC (Commodity Futures Trading Commission) delivered a direct warning to prediction market participants on Tuesday, making clear that insider trading laws apply to the industry and that the agency is actively monitoring for violations.
“Unfortunately there’s a myth in mainstream media and social media that insider trading doesn’t apply in the prediction markets,” CFTC Enforcement Director David Miller reportedly said at a panel at New York University. “That is wrong.”
Miller, a former federal prosecutor appointed to the position on March 2, said the agency is already paying attention to activity in the space. “We are aware of the speculation about insider trading,” he said. “We are watching.”
“Our position is that event contracts are not gaming. The event contracts at issue are swaps. Insider trading law applies,” Miller reportedly said. He added that enforcement efforts would focus on meaningful cases rather than minor infractions. “We will only be prosecuting cases against those who tip or trade with misappropriated information,” he said, while noting that the Commission would not dedicate resources to trivial matters.
The remarks came against the backdrop of insider trading concerns in prediction markets climbing up the agenda for US lawmakers, with the industry having recently exceeded $20 billion in monthly volume according to blockchain intelligence firm TRM Labs. The rapid expansion has drawn scrutiny in part because some markets are thinly traded enough that a single participant can move prices materially.
One episode that sharpened those concerns involved a trader on Polymarket who made approximately $400,000 betting on the removal of former Venezuelan leader Nicolas Maduro, with a number of those trades placed shortly before President Donald Trump publicly announced that the US had captured him.
Apart from insider trading, Miller said that the US commodities regulator would concentrate enforcement resources on market abuse and violations of anti-money laundering laws. The prediction market industry has also faced separate legal pressure from state officials who argue that federally regulated exchanges should fall under state jurisdiction.
This also comes amid Texas Senate adding a study of prediction markets, crypto, and blockchain to its priorities for the state’s next legislative session, reflecting how the ramifications of prediction market is gaining ground in regulatory spheres.
