Insider trading in prediction markets: the US rules on event contracts, and the cases so far

Yes: US insider-trading and manipulation law reaches prediction markets. The Commodity Futures Trading Commission (CFTC) treats event contracts as swaps, and section 6(c)(1) of the Commodity Exchange Act (CEA) and CFTC Rule 180.1 forbid fraud and manipulation in connection with any swap. On top of that, CFTC-registered exchanges must police their own markets, and their rulebooks bar insiders and people who can influence an outcome from trading it. In 2026 the CFTC brought its first cases.

This guide covers the rules, the risks regulators and leagues have named, and the cases so far. For how event contracts work, start with our prediction markets explainer.

The federal rules

Fraud and manipulation. CEA section 6(c)(1) makes it unlawful to use any manipulative or deceptive device in connection with any swap. Rule 180.1 spells it out: it is unlawful, intentionally or recklessly, to use a scheme to defraud, to make a materially false or misleading statement, or to engage in any practice that operates as a fraud on any person. Rule 180.2 separately bans manipulating, or attempting to manipulate, the price of any swap.

Insider trading is misappropriation. Rule 180.1 does not require anyone to disclose nonpublic information just because it would move a price. The CFTC’s theory is narrower: misappropriating confidential information in breach of a pre-existing duty of trust and confidence to its source, which it calls insider trading. An employee who trades on an employer’s secrets, or an official who trades on government information, fits that pattern.

Government information. Section 4c(a)(3) bars federal employees and agents, members and employees of Congress, and judicial officers and employees from using information they acquired through their positions, and not yet made public, to trade futures, options or swaps for personal gain. Section 4c(a)(4)(C) bars anyone from stealing or misappropriating federal government information to trade. When it used these provisions for the first time, in an April 2026 complaint against an event-contract trader, the CFTC called them the so-called “Eddie Murphy Rule.”

Other practices. The CFTC’s Division of Enforcement has listed wash sales and prearranged trading, and disruptive trading such as spoofing, among the practices it can pursue on prediction markets. Manipulating or attempting to manipulate the price of a swap is also a felony under CEA section 9(a)(2), punishable by a fine of up to $1,000,000, up to 10 years in prison, or both.

What exchanges must do

A designated contract market (DCM) must comply with 23 core principles. Three matter most here:

• Core Principle 3: list only contracts that are not readily susceptible to manipulation.
• Core Principle 4: have the capacity to prevent manipulation through surveillance, compliance and enforcement, including real-time monitoring of trading.
• Core Principle 12: establish and enforce rules protecting markets and participants from abusive practices.

CFTC staff describe DCMs as front-line regulators. When monitoring turns up anomalies, an exchange can obtain trader-level data and may bring disciplinary action.

Exchange rulebooks go further than federal law. Rule 5.17 of version 1.29 of the KalshiEX rulebook, for example, bars an “Insider” with access to material nonpublic information about a contract’s subject from trading it, and bars employees and affiliates of the contract’s source agency. Rule 5.17(z) bars anyone who is a decision maker or has any influence on the outcome, “no matter the scale and importance of the influence,” from trading. From 27 October 2026 the same rule also bars harassing third parties in connection with trading.

The risks regulators and leagues have named

Sports. In Staff Letter 26-08 (12 March 2026), the CFTC’s Division of Market Oversight said contracts that settle on a player’s injury, unsportsmanlike conduct, fights between players, officiating decisions, or the action of a single person or small group may carry a heightened potential for manipulation. Contracts settling on the combined performance of many participants over an extended period have often been shown to meet Core Principle 3. Staff encouraged exchanges to use leagues’ official data, to look at league lists of restricted participants, and to cooperate with league investigations.

League agreements. The CFTC has signed memoranda of understanding to share information with Major League Baseball (19 March 2026, the first with a professional league), the National Hockey League (21 May 2026) and the National Basketball Association (26 October 2026). The NBA document says it creates no legally binding obligations (our brief).

Mention markets. Staff Letter 26-27 (22 September 2026) covers contracts on whether a person will say a word, attend an event or interact with someone. Staff said they may treat these as presumptively readily susceptible to manipulation, because one person controls the outcome and people close to that person may hold scripts, prepared remarks or guest lists in advance. An exchange that wants to list one should expect to make a heightened showing. Suggested controls include restricted lists of people connected to a contract, pop-up confirmations before trading, and monitoring for patterns such as large profits in the only category of contracts an account trades (our brief).

Example, with hypothetical numbers: why position limits matter in a contract one person can control. Suppose “yes” trades at 20 cents and the exchange caps each account at 5,000 contracts. A person able to cause the outcome could spend at most $1,000 and collect $5,000 at settlement, a $4,000 gain before fees. With a 50,000-contract cap, the same move would cost $10,000 and pay $50,000, a $40,000 gain. That is the logic behind staff’s call for limits sized so that manipulation would make no economic sense. The gain would come from the traders holding “no.”

The cases so far

Exchange discipline. On 25 February 2026, Kalshi published two disciplinary actions. A YouTube channel editor who traded contracts on the channel’s videos received a 2-year suspension and a financial penalty of $20,397.58. A candidate for governor who traded on his own race received a 5-year suspension and a penalty of $2,246.36. The CFTC said the same day that the conduct potentially violated section 6(c)(1) and Rule 180.1, and that it has full authority to police such trading on any DCM. By 28 August 2026 Kalshi had published notices numbered up to KDA-2026-0011; seven of them involve candidates trading contracts on their own races.

CFTC cases. The CFTC has announced four:

• Gannon Ken Van Dyke (23 April 2026). The CFTC alleges that the active-duty Army service member used classified information about the operation to capture Nicolás Maduro to buy more than 436,000 “Yes” shares of a “Maduro Out” contract on Polymarket.com, making more than $404,000. The CFTC called it its first insider-trading case involving event contracts and its first use of the Eddie Murphy Rule. The US Attorney’s Office for the Southern District of New York announced a parallel indictment.
• Michele Spagnuolo (27 May 2026). The CFTC alleges that the Google software engineer used nonpublic information about Google’s 2025 Year in Search list to trade at least twenty-three related contracts on Polymarket.com, making about $1.2 million. A parallel criminal complaint was unsealed the same day.
• George Santos (31 July 2026). In an order he consented to without admitting its findings, the CFTC found that the former congressman traded a Kalshi contract on whether he would attend the 2026 State of the Union while making material misrepresentations on social media about whether he would go. He must disgorge $17,569.98, pay a $17,500 penalty and accept a three-year trading ban. Kalshi separately suspended him permanently and imposed a $71,356 penalty.
• Gabriel Perez (28 August 2026). In an order he consented to without admitting its findings, the CFTC found that the White House teleprompter operator traded presidential mention-market contracts on Kalshi using advance access to speeches. He must disgorge $107,539.02 and pay a $65,000 penalty, reduced for cooperation, with a three-year trading ban. The CFTC thanked Kalshi for its assistance.

The Van Dyke and Spagnuolo matters are allegations, and we found no CFTC announcement resolving either as of late October 2026. All four cases rest on event contracts being swaps. In disputes over state gambling law, all decided at the preliminary-injunction stage, a Third Circuit panel held in April 2026 that sports event contracts are swaps, a Ninth Circuit panel concluded in August 2026 that they are likely not swaps, and a Sixth Circuit panel held in September 2026 that the exchange had not shown they are swaps. The CFTC proposed on 19 October 2026 to write event contracts into the swap definition, with comments due by 18 November 2026 (our brief).

Registered exchanges and offshore platforms

The anti-fraud rule is not limited to registered exchanges: Rule 180.1 covers any swap. The CFTC’s two insider-trading complaints concern Polymarket.com, which they describe as a decentralized-finance protocol on the Polygon blockchain. The Van Dyke complaint alleges that the contracts were traded through interstate commerce, including by people in the United States and with accounts funded through US financial institutions.

What changes is the layer above the law. The core principles, the surveillance duties and the exchange rulebook bans described above are obligations of CFTC-registered exchanges. The CFTC warns that customers may have little or no protection with unregistered entities operating outside the United States. The disruptive-practices ban in section 4c(a)(5) applies to trading on or subject to the rules of a registered entity. In January 2022 the CFTC fined Polymarket’s operator $1.4 million for offering event contracts without registering; that order concerned the firm’s conduct at the time.

Our enforcement tracker lists CFTC actions as they are announced.

Frequently asked questions

Is insider trading illegal on prediction markets? Under the CFTC’s reading, yes. It treats event contracts as swaps and has charged misappropriation of confidential information under section 6(c)(1) and Rule 180.1. Exchanges also ban trading by insiders and people who can influence an outcome, and punish it themselves.

Can a candidate trade a contract on their own election? Kalshi’s rulebook bars anyone with influence on an outcome from trading it, and the exchange has disciplined candidates for doing so. In the first such case, the CFTC said the conduct potentially violated federal anti-fraud law.

Why are mention markets treated differently? Their outcome depends on what one person says or does, and the people around that person may know it in advance. CFTC staff said in September 2026 that they may view such contracts as presumptively readily susceptible to manipulation.

Does the law apply on platforms outside the US? The CFTC has brought insider-trading cases over trades on Polymarket.com, alleging US links. Exchange-level safeguards, such as surveillance duties and core principles, apply only to registered exchanges, and the CFTC warns that unregistered platforms may offer little or no protection.