Polymarket, one of the world's largest prediction markets, has referred dozens of accounts suspected of military insider trading to the Justice Department for investigation. The referrals, which had not been publicly disclosed until now, involved accounts flagged by a watchdog group that showed signs of potential illegal activity on war-related markets.

What Is Military Insider Trading on Prediction Markets?

Prediction markets allow traders to bet on the outcomes of real-world events, from sports and elections to military conflicts. On Polymarket's offshore platform, traders can wager on war-related events, even though war markets are illegal under US law. A nonpartisan watchdog organization called the Anti-Corruption Data Collective analyzed publicly available Polymarket data and identified 152 accounts that profited approximately $8 million on war markets, including bets related to the Iran conflict.

Many of these accounts displayed red flags commonly associated with insider trading. The accounts were often brand-new wallets that placed remarkably well-timed bets with longshot odds, achieving a 97% win rate. For context, most traders on prediction sites lose money, making this success rate extraordinarily unusual.

This is not the first time military-related insider trading has surfaced on Polymarket. In April, the Justice Department charged a Special Forces soldier with using military secrets to bet on a US raid that captured Venezuelan leader Nicolás Maduro. He pleaded not guilty. CNN also reported that one trader won nearly $1 million from dozens of suspicious trades about US and Israeli strikes against Iran.

How Are Prediction Market Platforms Responding to Insider Trading Concerns?

Polymarket has taken several steps to combat insider trading on its platform. In March, the company announced what it called "enhanced market integrity rules" for both its offshore and US-based operations. These measures include banning trades based on insider tips and prohibiting people in "a position of authority" to affect an event's outcome from trading on related markets.

Beyond policy changes, Polymarket has invested in sophisticated surveillance technology. The company recently hired a former FBI official who built custom surveillance software specifically for Polymarket's platform. According to Polymarket founder and CEO Shayne Coplan, the company's internal surveillance tools monitor approximately 150 different signals and trading patterns to detect insider activity. Coplan also noted that Polymarket partners with firms like Palantir and Chainalysis to strengthen its detection capabilities.

• Enhanced Market Rules: Polymarket banned trades based on insider information and restricted people in positions of authority from trading on related markets.
• Surveillance Technology: The platform employs custom proprietary software built by a former FBI official and monitors around 150 trading signals and patterns.
• Third-Party Partnerships: Polymarket collaborates with Palantir and Chainalysis to strengthen detection of suspicious trading activity.
• Regulatory Cooperation: The company works with law enforcement and the Commodity Futures Trading Commission (CFTC), the federal agency that regulates prediction markets.

A senior Polymarket official acknowledged to CNN that the patterns flagged by the watchdog group are often clues suggesting insider trading, but stressed that such patterns alone do not prove wrongdoing. The official emphasized that the company's comprehensive surveillance approach goes well beyond surface-level indicators.

Why Are Regulators and Lawmakers Concerned About War Markets?

The emergence of military insider trading on prediction markets has triggered significant regulatory and legislative scrutiny. The CFTC is investigating whether Polymarket is operating within the law. The House Oversight Committee is also examining prediction markets for insider trading concerns, and the New York City Council is probing these companies over their marketing practices.

A bipartisan coalition of 44 state attorneys general is pushing for more regulation of prediction markets. Additionally, an increasing number of Democrats and Republicans in Congress have raised concerns that war markets could threaten national security by incentivizing corruption within the military and potentially tipping off US adversaries to classified operations.

"We have a national security infrastructure designed to keep things secret. Providing an opportunity for someone to break that seal of secrecy, just to make some money, puts our entire national security structure at risk," said Michelle Kendler-Kretsch, a researcher at the Anti-Corruption Data Collective.

Michelle Kendler-Kretsch, Researcher, Anti-Corruption Data Collective

Polymarket itself has not been accused of wrongdoing. The company's founder emphasized that when insider-trading incidents have occurred, Polymarket has cooperated with regulators and law enforcement. However, the mounting number of cases suggests that enforcement efforts may not be keeping pace with the scale of the problem.

The situation highlights a fundamental tension in the prediction market industry: these platforms offer valuable price discovery and forecasting capabilities, but their decentralized nature and offshore operations can make them difficult for regulators to monitor. As prediction markets continue to grow in popularity and trading volume, the challenge of preventing insider trading while preserving the platforms' utility will likely remain a central focus for policymakers and law enforcement.