Why a $400,000 windfall has raised concerns of insider trading on prediction markets

In a statement on Thursday, Polymarket said it had informed the DOJ about a user using classified government information to trade, and fully cooperated with the department’s investigation.

When asked about the arrest, US President Donald Trump dismissed concerns about insider trading on prediction markets. He said that he was “never much in favour”. “The whole world, unfortunately, has become somewhat of a casino,” Trump said. “I don’t like it, conceptually, but it is what it is.”

However, he previously told The Washington Post that prediction markets are better than “fake polls,” noting that both Kalshi and Polymarket gave Trump stronger odds of winning the 2024 election than traditional polling. “They predicted me pretty right… by a landslide,” he then said.

Here is what to know.

First, what is insider trading?

Insider trading refers to the breach of a fiduciary duty or other relationship of trust and confidence while trading a security (for example, a stock) based on nonpublic information that only a few people are privy to. The Securities and Exchange Commission (SEC), the market regulator in the US, identifies employees of law, banking and brokerage firms, as well as government employees, trading in securities based on confidential information they accessed while employed.

In India, the Securities and Exchange Board of India (SEBI) issued the Prohibition of Insider Trading (Amendment) Regulations, 2025, last March.

And what are prediction markets?

Prediction markets, also known as opinion trading platforms, are essentially betting or gambling sites that allow users to place bets on current events in politics, sports, weather, etc. Sites like Polymarket and Kalshi have seen bets placed on current events. Bets have been placed on when the US would possibly invade Greenland or Cuba, or when Ayatollah Ali Khamenei would be assassinated.

Users who place correct bets will make money off those who made incorrect predictions, entering into arrangements wherein the payout is contingent on the outcome of an event unfolding in real time.

Several platforms have branded themselves as financial trading platforms, using business terminology such as profits, trading, stop loss, etc. They claim they are operating as commodity exchanges, merely taking a cut from “trades” they have facilitated.

Both Polymarket and Kalshi see millions of users placing wagers worth billions of dollars on thousands of markets. In India, companies like Gurugram-based Probo and MPL Opinio operated in the space before winding down operations last year, with the former allowing bets on diverse sectors like sports, elections and cryptocurrency, while the latter restricted its purview to cricket.

Prediction markets have existed in some form for decades, with the Iowa Electronic Markets pioneering political bets as far back as 1988. The Indian Express previously reported that the Indian opinion trading sector saw over 5 crore users at its peak, and enjoyed more than Rs 4,200 crore in funding from over 35 investors, including Sequoia Capital (PeakXV), Elevation Capital, Accel Partners, Soma Capital and Y Combinator.

Are prediction markets legal?

In several parts of the world, such as the US, UK and Australia, prediction markets are legal and regulated. In the US, the Commodities Futures Trading Commission (CFTC), one of its two major regulators, oversees US-based prediction market platforms like Kalshi. On the other hand, Polymarket is not regulated by the CFTC and has previously come under the DOJ’s scrutiny for accepting trades from US-based users.

The New York Times reported that US residents who wish to trade on international sites tend to use a virtual private network (VPN) to mask their location and access a wider range of markets.

The Indian government banned all online money games last August through the Promotion and Regulation of Online Gaming Act, 2025. The law, which was notified this month and is effective May 2026, expressly prohibits any person from offering online games in India, failing which they face three years of jail time and a penalty of Rs 1 crore. Those promoting such platforms in India will also face two years of imprisonment and a penalty of Rs 50 lakh. The government will also prohibit banks and financial institutions from facilitating financial transactions on such platforms.

This ban followed SEBI’s warning last May against trading on such platforms, saying that no investor protection mechanisms exist. “Since none of the platforms providing opinion trading can qualify to be recognised as a stock exchange, and are neither registered or regulated by SEBI, any trading of securities on them is illegal (in case some of the opinions traded qualify as security),” SEBI then said.

However, the enforcement of such rules remains difficult in practice, with Indian users likely using VPNs to place bets on Polymarket. A market predicting the winner of the Tamil Nadu Legislative Election has received bets up to $16 million, as of Monday (April 27). IT Secretary S Krishnan remarked last week that the Centre was investigating how it could crack down on users accessing such markets via VPNs, saying separating legitimate from illegitimate use was “tricky” and “an ongoing exercise”.

If a situation similar to Van Dyke were to unfold in India — if a government employee were to trade on a platform like Polymarket using classified information — the existing insider trading laws would likely not apply, given SEBI’s lack of jurisdiction. Instead, such persons would likely be penalised under their respective service conduct rules.

Concerns around such sites

The application of insider trading law to prediction markets is not straightforward. Platforms like Polymarket are not regulated as securities exchanges, which raises questions about whether traditional insider trading statutes apply. In Van Dyke’s case, prosecutors argue that using classified government information for personal financial gain constitutes misappropriation, a theory of insider trading that doesn’t require the platform to be a recognised securities exchange.

Polymarket said this week it had published new rules to limit insider trading, while the White House announced on Friday that members of Congress and other government officials should be prohibited from using nonpublic information for financial benefit.

There are also concerns that wagers placed on current events may spur real-life data manipulation so that their bettors stand to make windfall gains. France’s national meteorological service announced this month that it was investigating a tampered weather sensor at Charles de Gaulle airport after $1.4 million was wagered earlier this month on Polymarket speculating about the daily high temperature in Paris. Winning bettors received thousands of dollars in payouts, The NYT reported.

Critics have also raised concerns about whether public statements by political figures have influenced markets in ways benefiting those with prior knowledge. A BBC analysis noted that Trump’s remarks about the Liberation Day tariffs pause on April 9, 2025, and his announcement of a “Complete and total resolution to hostilities” with Iran saw stock markets surge worldwide. It also noted that six accounts on Polymarket had been created on February 28, when the US and Israel commenced their strikes on Iran. These accounts made $1.2 million, while one user reportedly made $163,000 in correctly betting on a US-Iran ceasefire by April 7. Whether these accounts were linked to anyone with advance knowledge of either development has not been established.