Prediction market bets on inside information trigger federal insider trading liability

Employees who use material nonpublic information to place wagers on prediction markets face civil or criminal liability for insider trading. The Commodity Futures Trading Commission identifies event contracts on platforms like Polymarket and Kalshi as swaps or derivatives. Under CEA Section 6(c)(1) and Regulation 180.1, the CFTC prohibits trading on such information in derivatives markets. This regulatory framework creates a path for federal enforcement. The Department of Justice may prosecute such trades under the criminal wire fraud statute or for violations of the Commodity Exchange Act. Companies also face regulatory scrutiny and vicarious liability under CEA Section 2(a)(1)(B) for employee violations committed within the scope of employment.