Prediction Markets: Emerging Compliance Considerations for Companies and In-House Counsel

What are Prediction Markets? 

Similar to sports wagering, prediction markets are online platforms where users bet on the outcome of various real-world events, including sports, politics, governmental actions, pop culture, weather, economics, and other developments. With a broader range of events to wager on and the availability to do so even in those U.S. jurisdictions where sports wagering remains illegal under state law, prediction markets are surging in popularity and facing scrutiny amidst reports of market manipulation, insider trading, and the escalating federal-state jurisdictional conflict.

Who is Regulating Prediction Markets?

Prediction markets are attracting attention from multiple directions, including the Commodity Futures Trading Commission (CFTC), federal prosecutors, state gaming regulators, and state criminal law enforcement agencies.

The CFTC, under the current Presidential Administration, reversed the agency’s prior position and now claims that under the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) it has exclusive jurisdiction over all categories of prediction markets (including sporting events)—arguably preempting decades-old state gambling and gaming laws—on the ground that Dodd-Frank expressly granted the CFTC [exclusive] authority over event contracts. Numerous states dispute the CFTC’s interpretation of Dodd-Frank and assert that prediction market event contracts are indistinguishable from sports betting and should be regulated under existing, well-established state gambling laws and criminal law prohibitions. Operating without any state licensure or regulation, prediction markets are relying on the CFTC’s assertion of exclusive jurisdiction and preemption of state law to essentially operate in a self-regulated environment.

Separately, recent guidance from the CFTC’s Division of Market Oversight emphasized that designated contract markets (DCMs), as front-line regulators, should take proactive steps to ensure their markets develop in compliance with the Commodity Exchange Act (CEA) and Commission regulations. 

On March 31, 2026, CFTC Director of Enforcement David I. Miller delivered his first public remarks on prediction markets, emphasizing the CFTC’s exclusive jurisdiction. He further signaled the potential for the CFTC to bring insider trading actions in prediction markets when an individual possesses MNPI, intentionally misappropriates that information by trading on it or tipping others in breach of a duty of trust and confidence.  

Miller also stated that the CFTC will work closely with the DOJ in appropriate cases, including through criminal referrals, particularly in areas like market manipulation. These remarks echoed statements from the U.S. Attorney for the Southern District of New York (SDNY), Jay Clayton, regarding the prospect of bringing criminal matters in this space.

Indeed, on April 23, 2026, SDNY unsealed an indictment charging Gannon Ken Van Dyke, an active-duty U.S. Army Master Sergeant assigned to U.S. Army Special Operations Command, with using classified, nonpublic information to trade Polymarket event-based contracts for personal profit. According to the indictment, Van Dyke had access to classified information about a U.S. military operation, referred to as “Operation Absolute Resolve”, targeting Venezuelan leader Nicolás Maduro. Van Dyke is charged with five counts, including unlawful use of confidential government information under the Commodity Exchange Act, theft of nonpublic government information, commodities fraud, wire fraud, and engaging in a monetary transaction in property derived from specified unlawful activity. 

Van Dyke allegedly used a virtual private network (VPN) to purchase approximately $33,934 in “YES” shares on Maduro- and Venezuela-related contracts on the Polymarket platform. Following the apprehension of Maduro by U.S. forces on January 3, 2026, Van Dyke cashed out for a profit of approximately $409,881. He then attempted to conceal his identity and the source of the proceeds by routing funds through a foreign cryptocurrency vault and asking Polymarket to delete his account.

Notably, the DOJ also acknowledged Polymarket’s cooperation in the investigation. Polymarket’s CEO responded that, “the reality is we work proactively with all relevant authorities on any suspicious activity on our marketplace. We flagged this, referred it, and cooperated throughout the process.”

This case is significant because it reflects the government’s willingness to apply traditional commodities fraud and insider trading theories to prediction markets and event-based contracts, particularly where such trading is based on the misuse of MNPI.

The Federal-State Jurisdictional Conflict

While the CFTC asserts exclusive federal authority, several states are taking the position that prediction market event contracts are indistinguishable from sports betting and should be regulated under state gambling laws. As a result, as of now, more than 20 lawsuits and cease-and-desist actions against prediction market platforms are pending across the country, a 38-state coalition has filed briefs in pending actions in support of Maryland’s and Massachusetts’s position that state gambling oversight authority is not preempted by federal law, and a bipartisan group of 41 state attorneys general has recently filed comments with the CFTC asserting that prediction market contracts are indistinguishable from sports betting and should be regulated under state gambling laws. This federal-state conflict has escalated quickly. On April 2, 2026, the CFTC, joined by the DOJ, filed lawsuits against Arizona, Connecticut, and Illinois, arguing that these states’ enforcement actions violate the CFTC’s claimed exclusive jurisdiction under the CEA. CFTC Chairman Michael Selig stated the agency would “continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators.”

Thus far, the Third Circuit and the District of Arizona have held that event contracts offered by prediction market platforms are federally regulated swaps and not unregistered bets subject to state law gambling laws. Specifically, on April 6, 2026, a three-judge panel of the Third Circuit Court of Appeals ruled 2-1 that New Jersey gaming regulators cannot enforce state gambling laws against Kalshi’s sports-related event contracts. This marked the first federal appeals court decision on the central question of whether states or the CFTC have jurisdiction over prediction markets. Writing for the majority, Circuit Judge David J. Porter held that Kalshi’s event contracts constitute swaps and that the CEA grants the CFTC exclusive jurisdiction over trading on designated contract markets preempting state gambling laws. Similarly, on May 5, 2026, a Pheonix federal judge granted a preliminary injunction barring state officials from enforcing state gambling laws against federally regulated prediction market platforms, finding that the CFTC is likely to succeed on claims that the event contracts at issue are swaps beyond the reach of state regulators. The ruling arose from the federal government’s suit against Arizona after the state brought criminal betting charges against Kalshi. 

On the other side, however, the Ninth Circuit Court of Appeals, in connection with its review of whether federal law (via the CFTC) preempts state gaming regulations on prediction market sports event contracts, held oral arguments on April 16, 2026, in a matter involving enforcement actions taken by the Nevada Gaming Control Board. There, a panel of three judges showed skepticism toward the assertion that platforms like Kalshi, Robinhood, and Crypto.com represent "swaps" rather than gambling, with Judge Ryan Nelson characterizing the claim as "sophistry to the 'Nth' degree". 

Amidst this federal-state jurisdictional conflict, state regulatory and criminal law enforcement efforts have continued. On April 21, 2026, New York Attorney General Letitia James sued Coinbase Financial Markets, Inc. and Gemini, Titan LLC, alleging that their prediction market platforms constitute illegal, unlicensed gambling operations under New York law. The complaints further allege violations of New York’s prohibition on betting involving in-state college teams. The Attorney General seeks forfeiture of illegal profits, restitution for affected consumers, and fines equal to three times the companies’ profits from the alleged conduct.

The CFTC responded swiftly. On April 24, 2026, the agency sued the State of New York, adding it to the list of states (alongside Arizona, Connecticut, and Illinois) targeted by the Commission as it seeks to block state efforts to shut down prediction markets as unlicensed, illegal gambling. This action further underscores the CFTC’s intent to defend its preemption position against state-level enforcement. These parallel proceedings are likely to drive further litigation as courts continue to address the scope of federal versus state authority in this area. In fact, numerous legal commentators have opined that the growing circuit split over prediction markets’ legal status is increasing the likelihood of a Supreme Court review by 2027.

Key Compliance Risks

Given the rapidly evolving regulatory landscape, in-house counsel should assess whether employees are participating in prediction market platforms and take proactive steps to review and update internal training and compliance policies governing trading, MNPI, gambling, and employee conduct. In assessing the risks that these markets pose for companies, in-house counsel should consider the following categories of compliance risks:

• Regulatory uncertainty: There is currently a lack of consensus on whether prediction market activity constitutes a regulated financial product or unlicensed gaming activity, leaving companies exposed to enforcement risk from multiple directions. 
• Confidential information exposure: Employee use of prediction markets for forecasting and decision-making may implicate the use of nonpublic or confidential information. On March 23, Kalshi and Polymarket announced new rules against insider trading and market manipulation, reflecting increasing alignment with traditional financial market regulation. In-house counsel should ensure that internal policies fully address prediction market activity. Employees who trade on prediction markets using misappropriated MNPI may face insider trading liability. Companies should also review internal gambling policies and training requirements to ensure they account for this emerging activity. 

Companies should ensure that employees clearly understand what they can and cannot do when trading in their personal accounts, particularly where they may have access to sensitive or confidential information, including risks arising from misappropriation. Organizations should consider whether participating in prediction markets creates indirect compliance, reputational, or conduct risks, and whether controls or restrictions on employee participation are needed. Finally, companies should monitor regulatory developments at both federal and state levels, which remain unsettled and continue to evolve.

Ballard Spahr’s White Collar Defense and Investigations Group advises clients across industries on DOJ and regulatory priorities, internal investigations, and enforcement risk. We assist companies in evaluating compliance frameworks, preparing for potential disclosures, and responding to government inquiries. Please contact us if we can support your organization in navigating this evolving enforcement landscape.

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