The United States government has intensified its scrutiny of the prediction market industry, launching at least three previously undisclosed investigations into suspicious trading activity on the platform Polymarket. According to internal documents obtained via a Freedom of Information Act (FOIA) request, the Commodity Futures Trading Commission (CFTC) is aggressively pursuing leads related to potential insider trading involving high-stakes political and geopolitical events. These probes, which involve parallel efforts by the Department of Justice (DOJ) and the Southern District of New York (SDNY), signal a pivotal moment for the burgeoning industry of "event contracts," where participants wager on the outcomes of real-world occurrences.
The investigations highlight a growing concern among federal regulators that prediction markets, which have seen a massive surge in volume and cultural relevance over the last several years, have become a playground for individuals with access to non-public, sensitive information. From presidential pardons to military conflicts and corporate data, the scope of the alleged misconduct suggests that the "wisdom of the crowd"—the theoretical basis for these markets—may be being compromised by illicit "insider" knowledge.
The Chronology of Federal Oversight and New Investigative Orders
The paper trail of the CFTC’s enforcement actions reveals a rapid escalation of oversight beginning in early 2026. The documents, which include voting records and internal correspondence, show that CFTC Chairman Michael Selig personally approved a series of orders that granted the agency’s enforcement division broad powers. These powers include the authority to take testimony, issue subpoenas, administer oaths, and compel the production of documents.
In early May 2026, the first of these orders focused on event contracts related to the final actions of the Joseph Biden administration. Specifically, the agency began investigating suspicious wagers placed on the likelihood of presidential pardons. This order followed a series of market movements that suggested certain traders knew exactly who would receive executive clemency before the news was made public.
By late May, the scope expanded to include international relations. Selig approved a second investigation into "Iran event contracts." This probe targeted a network of accounts that demonstrated an uncanny ability to predict geopolitical shifts and military escalations involving Tehran. Finally, in July 2026, a third investigation was greenlit, focusing on corporate insider trading. This investigation targeted individuals who allegedly used proprietary information from Google to profit from markets predicting the company’s "Year in Search" rankings.
The Biden Pardon Trades: A Case Study in Suspicion
The impetus for the Biden pardon investigation appears to have been rooted in highly anomalous trading patterns observed during the transition period. While the CFTC documents do not name specific individuals under investigation in this phase, they coincide with public reports of a single trader who netted more than $300,000 in the final days of the administration.
The trader in question successfully wagered on the issuance of preemptive pardons for several prominent critics of the MAGA movement, including former U.S. Representatives Liz Cheney and Adam Kinzinger, as well as U.S. Senator Adam Schiff. These pardons were viewed as controversial and were not widely expected by the general public or political analysts at the time. The accuracy and timing of the bets led many to believe the trader had direct access to the White House’s internal legal deliberations.
Legal experts note that if the CFTC can prove these trades were based on leaked government information, it could set a major precedent. Joseph Konizeski, a former chief trial attorney in the CFTC’s division of enforcement, observed that the agency’s reliance on press reports to initiate these orders suggests a reactive rather than proactive regulatory stance. However, the formalization of these investigations allows the government to deploy its full investigative toolkit to identify the source of the leaks.
Geopolitical Wagering and the Iran Event Contracts
The investigation into Iran-related contracts represents perhaps the most significant concern regarding national security and market integrity. In mid-May, investigative reports highlighted a cluster of accounts on Polymarket that managed to generate $2.4 million in profits with a staggering 98 percent win rate on contracts related to Iranian military activities and diplomatic outcomes.
The statistical impossibility of such a high win rate in the volatile environment of Middle Eastern geopolitics strongly suggests the use of classified or restricted information. The CFTC’s investigation is reportedly looking into whether individuals with ties to intelligence agencies or diplomatic circles were involved in these trades. The potential for "blood money" bets—where individuals with the power to influence or observe military conflict profit from that knowledge—has long been a fear of regulators who oppose the existence of war-related prediction markets.
The Google Insider Trading Case and Parallel Prosecutions
The third investigation focuses on the intersection of corporate data and prediction markets. In July, Paul Hayeck, the acting director of the CFTC’s department of enforcement, confirmed in internal emails that the agency was looking into "additional individuals" who may have engaged in insider trading regarding Google’s 2025 "Year in Search" rankings.
This investigation runs parallel to the criminal case against Michele Spagnuolo, a former Google engineer. Spagnuolo was arrested in May 2026 and accused of using his access to internal company data to make over $1.2 million on Polymarket. Federal prosecutors allege that Spagnuolo knew the specific rankings of search terms before they were released to the public, allowing him to place "sure-thing" bets on the platform.
The SDNY’s involvement in a parallel investigation indicates that the government views these actions not just as regulatory violations of the Commodity Exchange Act (CEA), but as criminal wire fraud. Spagnuolo, along with a U.S. Special Forces officer arrested in a separate case involving wagers on the capture of Nicolás Maduro, is fighting the charges. Their legal defense rests on the argument that Polymarket trades are a form of "gambling" or "betting" rather than "commodity trading," and are therefore outside the jurisdiction of federal commodities law.
Polymarket’s Evolution and Political Ties
The regulatory scrutiny comes at a time of massive growth and political realignment for Polymarket. After being effectively banned from operating in the United States in 2022, the company pivoted, eventually launching a limited, U.S.-regulated version of its platform in late 2025.
Polymarket’s influence has been bolstered by its financial backing. A recent fundraising round, which valued the company at an estimated $21 billion, was led by 1789 Capital, a venture capital firm founded by Donald Trump Jr. This connection has led to a complex political dynamic. While some critics argue the CFTC has been too "friendly" toward prediction markets under the current administration, the launch of these three major investigations suggests that the agency’s enforcement arm remains active, even as the platform enjoys high-level political support.
In response to the investigations, Olivia Chalos, Polymarket’s deputy chief legal officer, emphasized the company’s cooperation with authorities. "While we do not comment on specific investigations, we regularly refer matters to law enforcement and support ongoing investigations as part of our commitment to protecting the integrity of our markets," Chalos stated.
Comparison with Kalshi and the Broader Industry Impact
Polymarket is not the only platform under the microscope. Its primary competitor, Kalshi, has also been a focal point for the CFTC. However, the relationship between Kalshi and the regulator appears more collaborative. Kalshi has reportedly referred at least 32 cases of suspicious trading to the agency.
The most high-profile enforcement action involving Kalshi resulted in a $35,000 fine against former U.S. Representative George Santos. The fine was related to a contract regarding whether Santos would attend the 2026 State of the Union address. Kalshi also issued its first-ever lifetime ban to Santos for violating rules on market manipulation.
These cases highlight a fundamental tension in the prediction market industry. Proponents argue that these platforms provide more accurate forecasts than traditional polling or expert analysis. Critics, however, contend that the incentive for insider trading is too high, particularly when the subjects of the bets—such as politicians, soldiers, or corporate insiders—have the power to influence the outcome.
Implications for the Future of Prediction Markets
The outcome of these investigations and the subsequent legal battles will likely define the future of the industry. If the courts rule that these trades are indeed "commodities," the CFTC will have clear authority to impose strict reporting requirements and anti-fraud measures similar to those in the stock market. If the "gambling" defense succeeds, it could lead to a fragmented regulatory landscape where different states or agencies struggle to maintain oversight.
Furthermore, the "parallel investigations" mentioned by CFTC officials suggest that the DOJ is prepared to treat prediction market insider trading with the same severity as traditional Wall Street crimes. For the users of these platforms, the message is clear: the anonymity and decentralization often associated with crypto-based prediction markets do not provide a shield against federal subpoenas and forensic accounting.
As the CFTC continues to process the data from its subpoenas, more arrests and civil charges are expected. The integrity of the 2026 and 2028 election cycles may depend on the government’s ability to ensure that these markets are not being manipulated by those with the keys to the halls of power. For now, the documents obtained by WIRED serve as a stark reminder that as prediction markets move into the mainstream, they are bringing the full weight of federal law enforcement along with them.
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