'Survival is at stake': Inside prediction markets' race to curb inside trading
As Congress threatens a crackdown, firms claim they can police themselves.
Tucked deep inside the Manhattan offices of the prediction market firm Kalshi lies a dimly lit annex, where about a dozen young men in athleisure wear quietly tap away at keyboards.
The open concept and casually attired employees bear a resemblance to countless other start-ups. But what happens here, according to Kalshi's Robert DeNault, could dictate the trajectory of America's newest obsession: prediction markets.
"What's at stake in this room?" asked ABC News Chief Investigative Correspondent Aaron Katersky.
"The integrity of our markets," replied DeNault, the 31-year-old head of enforcement at Kalshi, the top U.S.-based prediction market.
Amid a flurry of splashy news headlines about allegations of insider trading on prediction markets, DeNault says monitoring for insider trading is now Kalshi's "No. 1 priority." Kalshi, which is the top U.S.-based prediction market, launched more than 200 investigations last year and says it has eclipsed that figure in the first quarter of 2026 alone.
The rise of this novel marketplace has prompted new questions about market integrity: How can existing insider trading laws designed for Wall Street possibly extend to wagers on a celebrity's attendance at an awards show, or the winner of a reality television contest?
'This must be an insider'
DeNault and his team have set out to answer that question. He said Kalshi scours social media, employment records and other publicly available information to find out if suspicious bettors have any nexus to the event itself.
For politics-related bets, for example, "we do name-match recognition, we scrape [Federal Election Commission] campaign data lists for salaried campaign staff who are prohibited from trading on elections markets," DeNault explained. "And so those trigger flags in our systems, and we've prevented hundreds of cases of insider trading based on that."
As prediction markets outgrow their reputation as a niche financial instrument and burst into the mainstream, the steady drumbeat of suspiciously well-timed transactions on matters both consequential and mundane threatens to derail the industry's momentum, experts say.
The high-profile criminal case against Gannon Van Dyke, an American special forces soldier who last month pleaded not guilty to charges that he wagered on Polymarket about the success of the U.S. raid against Venezuelan President Nicolas Maduro, demonstrates the immense temptation for insiders to allegedly capitalize on knowledge they might otherwise be duty-bound to protect.
A month after Van Dyke entered his plea, a Google employee was charged Wednesday with fraudulently making more than $1 million by using inside information to place Polymarket bets on what users were searching for on Google. He did not enter a plea during a court appearance.
Even in Kalshi's popular culture markets, speculation over rampant insider trading has grown. Observers recently noticed that Kalshi bettors had, with remarkable accuracy, predicted the winner of the latest season of "Survivor" -- a show that, because it airs months after taping, presents a ripe opportunity for people with knowledge of the outcome to cash in.
"Survivor" host Jeff Probst recently criticized prediction markets for "incentivizing people to lie, cheat and steal to get ahead."
DeNault, a self-professed "Survivor" fan," responded on X that Kalshi investigated the matter, but determined that "no traders with large positions seem to have a relationship to the show or to the network," and attributed the anomaly to "public rumors" online.
"We see a lot of reporting on a lot of markets where people say, 'This must be an insider,'" DeNault told ABC News. "[But] there's a lot of reporting on Reddit and other websites about what might unfold on a particular season of 'Survivor'. And so it drives traders to make particularly confident trades. But it doesn't mean that they necessarily have material, non-public information."
'Survival at stake'
With leaders in Washington and state capitols threatening to crack down on prediction markets, industry leaders and observers increasingly believe that the perception of rampant insider trading poses an existential threat to the burgeoning industry -- so the companies and their regulators are racing to respond.
"There's been a real change in how [prediction markets] approach this issue," said Dustin Gouker, a journalist and podcaster who covers prediction markets. "Six months ago, they were barely talking about insider trading. Now this is a huge part of their messaging."
"I think their survival is at stake," Gouker said.
Kalshi management say they have referred dozens of cases of possible insider trading to their federal regulator, a little-known agency called the Commodity Futures Trading Commission, or the CFTC. The commission is led by a zealous proponent of prediction markets, Michael Selig, who has tangled with several states in court to preserve his agency's regulatory jurisdiction over the growing industry.
Selig sits alone on a commission that typically has five seats, granting him unusual authority over prediction markets and cryptocurrency regulations. President Trump has yet to nominate other appointees to the commission.
In his Washington, D.C., office decorated with Trump-themed paraphernalia -- including a red "Trump 2028" hat and sneakers signed by the president -- Selig repeatedly touted his agency's ability to police prediction markets, likening himself to a "cop on the beat."
"To the extent anyone's considering engaging in insider trading, fraud or manipulation in our markets, we're going to find you and we're going to take legal action," Selig warned.
But so far, the results haven't lined up with Selig's stern threats. The agency has only taken one enforcement action so far in 2026 -- a penalty for Van Dyke, the special forces soldier facing federal criminal charges for his alleged wager on the Maduro raid.
Selig repeatedly teased more enforcement actions to come, urging those concerned to "stay tuned."
"It takes a long time to bring an action," Selig said. "We have many that are in the pipeline. We have subpoenas out, of course, and we're receiving information, we're taking testimony, making sure that we're prepared to be able to bring action."
But critics question whether the CFTC -- historically focused on agricultural and commodities derivatives -- is equipped to oversee markets increasingly tied to politics, sports and celebrity news. The agency has shrunk roughly 25% in size since last year.
"Do you have the horses?" Katersky asked Selig.
"There's a lot of news out there," Selig replied, saying they're using artificial intelligence tools to support their work. "We have the team we need to get the job done."
Part of the hurdle for regulators, and the firms themselves, is educating the public on the rules of the platforms. Ian McGinley, a former director of enforcement at the CFTC, said that given the breadth of offerings on prediction markets, it will take time for the public to understand how to use them.
"One challenge with prediction markets space is making sure that entities and people who have not traditionally been trained or told that certain information can't be used are made aware of that," McGinley said.
'Rot a little bit inside'
Despite pronouncements of looming enforcement actions, many lawmakers on Capitol Hill seem unconvinced that existing regulations are sufficient. More than a dozen bills have been proposed that would, to varying degrees, limit the types of wagers offered on regulated markets like Kalshi. It's a rare source of bipartisan agreement.
The Republican-led House Oversight Committee last week announced a probe into the "growing pattern of insider trading activity on prediction market platforms," according to letters the panel sent to executives at Kalshi and Polymarket.
Sen. Chris Murphy, D-Conn., and Rep. Greg Casar, D-Texas, recently introduced legislation that would ban prediction markets from offering contracts in which "someone knows the outcome in advance" or "someone has complete control of the outcome," which would impact vast swaths of the offerings on Kalshi and Polymarket.
"What happens to us spiritually when every moral question in this country just becomes a market?" Murphy said at a recent news conference announcing the bill. "Don't we lose something? Don't we rot a little bit inside?"
Other proposed legislation would ban sports-related wagers, which currently account for the vast majority of activity on prediction markets. Another bill would prohibit wagering on elections.
Advocates say the existing rules are enough. Amb. Sean Patrick Maloney, a former Democratic congressman who now leads the Coalition for Prediction Markets, a trade group for regulated platforms, said insider trading is already illegal, and asserted that lawmakers targeting prediction markets do so at the bidding of casino industry lobbyists.
"We think it's important to make sure that existing bans on insider trading have real teeth," Maloney said in an interview. "We know these markets work best when consumers can have confidence that they're fair. That's the business model that will let our companies do well as the markets develop responsibly. You will never get that with overseas operators."
The prediction market paradox
Many of the clearest examples of suspected insider trading occur on Polymarket, a Panama-based exchange that is not regulated by the CFTC. Officially, Americans are banned from accessing Polymarket's international platform. But many -- allegedly including Van Dyke, the indicted special forces solider -- have managed to access the site using digital workarounds, like virtual private networks, or VPNs.
Neal Kumar, the chief legal officer at Polymarket, told ABC News in a statement that the company had transmitted nearly 100 cases of suspected insider trading to U.S. law enforcement, including a referral for the case involving Van Dyke.
"We surveil and monitor for insider trading and other illegal activity, consistent with other markets," Kumar said in the statement.
But Polymarket's leader, company founder Shayne Coplan, once sang a very different tune regarding insider trading.
Last year, during an appearance hosted by Axios, Coplan asserted that "what's cool about Polymarket is that it creates this financial incentive for people to go and divulge the information to the market ... or someone tells someone, and then the market responds."
That tension lies at the heart of a paradox for the industry: Enthusiasts liken prediction markets to a so-called "truth machine," where contracts about politics and world events can accurately forecast outcomes using the wisdom of the crowd.
But to critics, that model incentivizes insider trading.
"The better the information is, the more useful it is to everything in the world, whether that's economic, whether it's geopolitical," Gouker explained. "But then we get to this world where we're actually having real-world cases of insider information being used in prediction markets."
For ordinary users, Gouker said, the consequences can be corrosive.
"Why would I want to trade against people if they know the answers?" Gouker asked.
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