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The daring Jan. 3 capture of Venezuelan dictator Nicolas Maduro took most people by surprise, a testament to the secrecy that surrounded the complex military operation.
But one bettor on Polymarket, one of the biggest prediction markets, appeared to have foreknowledge.
The user’s account was created in December and only bet on four Venezuela-related contracts, shelling out more than $30,000 and winning over $400,000.
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Soon, other bettors raised questions began about whether this mystery Polymarket user was an inside trader, someone who had advanced knowledge of the operation and used that knowledge to turn a profit.
The Maduro incident shined a light on one of the trickiest questions facing prediction markets, namely the treatment of insider trading.
It is illegal to engage on insider trading of corporate stocks. Executives or employees who have inside knowledge of a company’s plans or performance cannot use that information to gain a financial advantage. The Securities and Exchange Commission constantly polices markets for signs of insider trading.
Currently, though, similar protections do not exist for traders on prediction markets such as Polymarket and Kalshi, which have grown massively in recent months and allow users to bet on the outcomes of events large and small, ranging from presidential elections and NFL games to specific words used in press conferences or the amount of snowfall in a given day in New York City.
The presence of insider trading in prediction markets could be seen as a feature, not a bug, by prediction market proponents who value the markets for their accuracy and their ability to reflect all the best knowledge available — whether that information is coming from insiders or not.
But in recent weeks, several high-profile instances of suspected insider dealing have raised complaints from officials and legislators who say they are worried about traders getting ripped off — or even about prediction markets creating incentives for insiders to change the course of events. Now, the prospect of regulation or legislation looms for prediction markets.
Rep. Richie Torres (D-NY) said that the report of the Maduro inside trade was the kick he needed to come forward with a bill designed to curb insider trading on such platforms by government officials and aides.
“My team and I were thinking about it for a while, but the impetus was the anonymous trade,” Torres told the Washington Examiner during an interview.
What are prediction markets?
Kalshi, Polymarket, and other prediction markets offer event contracts that allow users to wager on outcomes.
Prediction markets began receiving major attention during the 2024 elections, during which President Donald Trump bested then-Vice President Kamala Harris. Many pollsters predicted that Harris had the edge or that it would be an exceedingly close contest, with some calling the race a coin flip.
Kalshi users, on the other hand, were implying notably higher odds of a Trump win than many pollsters were. And the prediction became reality after Trump secured a decisive victory and won every major swing state.
The idea behind prediction markets is relatively simple: Users can buy shares in possible outcomes for various events. Using the example of the presidential race, one share on that market would represent a “yes” for Trump winning, and another a “no.” The price of a yes results in $1 if Trump does indeed win, but goes to zero if he loses. If the price starts at 50 cents, that implies that he has a 50% chance of winning. Any user who thought Trump’s odds were better than that could buy a yes contract. If Trump then won, he would have gotten 50 cents for every contract he bought at 50 cents.
Insider trading fears
The Maduro trades were quickly flagged as being suspicious given the timing and the top-secret nature of the operation in Venezuela. And this isn’t the first time that certain prediction market trades have raised red flags.
In October, Norwegian officials who are in charge of awarding the Nobel Peace Prize said they were investigating after Venezuelan opposition leader Maria Corina Machado’s odds suddenly shot up hours before her win was announced.
“We take this very seriously,” Kristian Berg Harpviken, director of the Norwegian Nobel Institute, told Bloomberg at the time. “It seems we have been prey to a criminal actor who wants to earn money on our information.”
In December, a user on Polymarket raked in over $1 million in 24 hours by placing bets on Google’s 2025 Year in Search rankings, which many saw as suspiciously correct.
“We’ve had many reports of suspicions over the last few months of such things,” Robin Hanson, a professor at George Mason University and an expert on prediction markets, told the Washington Examiner.
Hanson said that, fundamentally, the concerns about insider trading on these platforms come down to people and organizations and their ability to keep secrets.
It is also true that prediction markets do their own policing of insider trading on their platforms, said Todd Phillips, assistant professor of law in the Robinson College of Business at Georgia State University and former attorney for the Federal Deposit Insurance Corporation.
“There are rules in place that these markets have to have their own anti-manipulation rules and surveillance happening, and so I think it’s fair to say that they do try very hard to prevent manipulation and insider trading, kind of the same way that we try to prevent insider trading on stock markets,” Phillips said.
He said that if the platforms find someone engaging in manipulation, they can give that information to government authorities.
Still, Ilya Belyin, a law professor at Seton Hall Law School, said there is little information out there about the extent of self-regulation, at least on Polymarket, where the Maduro trades were executed.
“We have not seen Polymarket rigorously enforce its rules, so we really don’t know about self-regulation in this area, but it seems to be weak,” Belyin told the Washington Examiner.
But what regulation is there
The Commodity Futures Trading Commission is the government agency tasked with regulating prediction markets.
The CFTC oversees markets where people trade derivatives, or contracts tied to prices, for instance, for commodities such as oil or wheat. But prediction markets with event contracts also fall under the CFTC’s purview, so as those markets continue to proliferate, the CFTC will be the agency that looks into accusations of insider trading.
In 2020, the CFTC issued Kalshi regulatory approval, making it the first fully regulated financial exchange for event contracts. But the other prediction market behemoth, Polymarket, has its main exchange operating internationally.
“The Maduro event contracts were traded on offshore, unregulated exchanges, so that contract was not listed on anything that is regulated by U.S. regulators,” Phillips told the Washington Examiner.
It is an open question of how aggressive the CFTC under Trump will be in regulating these prediction markets.
CFTC Chairman Michael Selig acknowledged the growth of prediction markets in an op-ed this week, saying that U.S. financial markets “are ready for a golden age.”
“As new asset classes emerge and the CFTC’s role evolves, guidelines we establish should not just fit the product, but also serve a tailored regulatory purpose,” Selig said. “Prediction markets have exploded in popularity as broad swaths of market participants seek to hedge portfolio risks and test their abilities to forecast truth.”
But Belyin said he is skeptical about CFTC enforcement with event contracts, in part, because of how new it all is and because the CFTC doesn’t have much of a history of enforcement related to event contracts.
A CFTC spokesperson told the Washington Examiner that Selig is “committed to promoting market integrity and investor protection in markets within the CFTC’s regulatory jurisdiction.”
“As he said during his confirmation hearing, he will engage with a broad array of stakeholders and policymakers to make informed decisions about the agency’s role in regulating emerging markets,” the spokesperson added. “This will necessarily require thoughtful consideration of very complex and evolving legal and policy issues.”
Possible legislation?
Some on Capitol Hill are pushing to crack down on the possibility of insider trading in prediction markets.
The Torres legislation, the Public Integrity in Financial Prediction Markets Act of 2026, has attracted 39 Democratic cosponsors so far.
The bill would specifically bar lawmakers, political appointees, executive branch employees, and congressional aides from trading prediction market contracts “tied to government policy, government action, or political outcomes when they possess material nonpublic information or could reasonably obtain such information through their official duties,” according to his office.
Torres told the Washington Examiner that the prediction markets could facilitate corruption at the highest levels.
“If you’re both a government insider and a participant in the prediction market, you now have a perverse incentive to push for policies that will line your pockets, and that kind of self-dealing is the very definition of corruption,” Torres said.
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Notably, Kalshi CEO Tarek Mansour came out in support of the Torres legislation, drawing a distinction between his platform and other unregulated offshore platforms.
“Kalshi is supportive of the bill Ritchie Torres is looking to introduce to affirm the ban on insider trading on prediction markets,” Mansour said. “Why? Because we already implement it. However, it’s important to emphasize that this American bill only applies to regulated, American companies and not to unregulated, non-American companies, which is where the alleged issues are occurring.”
