Betting on the Future: Enforcement Risks in Prediction Markets

Last month, the world watched two remarkable events unfold in quick succession: the U.S. operation that led to the capture of Nicolás Maduro and the Polymarket trader who turned a $400,000 profit by correctly predicting that outcome. Prediction markets have moved far beyond niche curiosity. They are now mainstream venues for betting on elections, economic data releases, corporate events, and even geopolitical developments.

These markets trade binary “yes/no” contracts whose prices reflect the crowd’s assessment of probability (e.g., a contract trading at $0.62 implies a 62 percent chance of the event occurring). Unlike traditional sportsbooks, most U.S.-accessible platforms operate as CFTC-registered designated contract markets for “event contracts”—commodity derivatives. That structure places them under CFTC oversight rather than state gaming commissions. Yet the very features that make them efficient information-aggregation tools also create substantial opportunities for abuse.

Insider trading and market manipulation risks in these markets are real and growing. Bad actors with access to material nonpublic information (MNPI)—whether from government service, corporate boardrooms, C-suites, or elsewhere—can place bets that move prices before the information becomes public. When the underlying event is tied to a public company (earnings beats/misses, M&A outcomes, regulatory decisions, product launches), such trading can implicate the full suite of federal securities-fraud statutes, including Section 10(b) and Rule 10b-5 under the Exchange Act (classic insider trading and misappropriation theories). Even when the investment contract is purely “event-based,” prosecutors can—and increasingly will—charge wire fraud, conspiracy, and commodities fraud.

The enforcement landscape is shifting rapidly. On February 5, 2026, the U.S. Attorney for the Southern District of New York Jay Clayton made clear that his office is focused on the prediction markets and that the “prediction market” label provides no insulation from prosecution. When asked whether participants in these markets were effectively beyond the reach of fraud statutes, Clayton responded bluntly: “No.” He added that prediction markets are “an area that I am looking at” and, when pressed on whether he expects enforcement actions, answered: “Yes.”

U.S. Attorney Clayton also signaled a new emphasis on corporate cooperation in this space. His office intends to offer swift, conditional non-prosecution agreements (NPAs) that require continued cooperation, with the explicit goal of “root[ing] out wrongdoers” inside companies. As he put it, the approach is: “let’s get an NPA signed as quickly as possible that calls for continued cooperation.”

Takeaways

• Before any government agency initiates an inquiry or takes any action, companies that self-report potential misuse of MNPI in prediction markets, preserve evidence, and cooperate fully can expect substantial credit—and, in appropriate cases, declinations. Companies demonstrating genuine commitment to integrity and cooperation can achieve favorable outcomes.
• The message to public companies is unmistakable: if your employees, officers, or directors are trading (or even discussing) prediction-market contracts tied to your own business outcomes, you now face heightened risk of SDNY scrutiny, parallel SEC/CFTC investigations, and the collateral consequences that follow. The days of treating prediction-market activity as a regulatory gray zone are ending.
• Although tipper–tippee liability continues to pose a significant risk in this space, companies can meaningfully reduce that risk through strong compliance frameworks, including clear codes of ethics, rigorous confidentiality policies, employee training, and effective monitoring.
• Proactive compliance enhancements in this novel area now will be far more cost-effective than reactive enforcement responses later.

Womble Bond Dickinson (US) LLP’s White Collar Defense and Criminal Investigations Team navigates domestic and international clients in all manner of white collar, regulatory, corporate and congressional investigations. Our team includes a distinguished roster of veteran defense attorneys, former federal prosecutors and U.S. Attorneys who served at the highest levels of the Department of Justice and at leading United States Attorneys’ Offices. Our team includes Chambers Ranked (Band 1) lawyers and alumni of the U.S. Department of Justice, the SEC’s Enforcement Division, the U.S. Senate, House of Representatives, and in-house compliance specialists of publicly traded companies.