U.S. authorities have launched a new wave of criminal allegations targeting individuals allegedly involved in insider trading on prediction markets. Among the accused are a U.S. service member who reportedly placed trades based on military activities and a KPMG employee involved in using non-public earnings information from a public company.
The Wall Street Journal has reported that the serviceman successfully wagered on Polymarket regarding military actions in Iran and Venezuela. In the case of the KPMG worker, allegations state that he utilized privileged data to bet on whether a specific public company would exceed the expected quarterly earnings consensus.
KPMG, a prominent accounting firm, has not commented on the ongoing investigation, which raises concerns over the potential misuse of sensitive financial information that the employee may have had access to prior to its public release.
These new charges would add to the existing legal troubles faced by Gannon Ken Van Dyke, an American soldier, and Michele Spagnuolo, an engineer from Google. Both are currently implicated in cases alleging they profited from insider information in their trades on Polymarket. Meanwhile, two Israeli officers have also been apprehended for participating in trading activities linked to military conflicts in the Middle East, with one officer claiming that such betting practices are prevalent among military personnel.
While wagering on war-related outcomes is prohibited in the U.S., Polymarket continues to permit betting on military events on its international platform. The site is blocked in over 40 nations, yet remains accessible in Israel.
A recent report from the Anti-Corruption Data Collective indicates that 152 accounts have been identified as having made substantial profits in military-related trades on Polymarket. In response, Polymarket has referred nearly 100 accounts to authorities due to signs of suspicious trading, maintaining that it monitors activities that could contravene its guidelines but has refrained from commenting specifically on the allegations against the serviceman and the KPMG employee.
According to the Wall Street Journal, both the Commodity Futures Trading Commission (CFTC) and prosecutors from New York and Washington are currently investigating the cases in question.
The CFTC has filed charges against Van Dyke and Spagnuolo, asserting violations of the Commodity Exchange Act (CEA). Van Dyke's defense team contends that the CFTC is overreaching its mandate, arguing that the markets in which he participated do not qualify as swaps as defined by the CEA. Spagnuolo faces not only CEA violations but also charges of wire fraud and money laundering, stemming from an alleged $1.2 million profit from trading based on inside information obtained from Google.
In a motion aimed at dismissing the charges, Spagnuolo’s lawyers echo Van Dyke's claim regarding the classification of markets, suggesting that their non-traditional nature should exempt them from CEA regulation. They reference government responses that dismissed this classification debate as largely irrelevant to the case, while strongly asserting its significance for their client.
Spagnuolo's legal team further argues the U.S. government lacks jurisdiction, emphasizing that he is a non-citizen trading on a non-U.S. platform. CFTC Chairman Michael Selig has stated the agency retains the authority to pursue cases involving international platforms under extreme circumstances.
As for the KPMG employee, it remains ambiguous whether any trading was conducted within U.S. borders. The serviceman's activities occurred on Polymarket's international platform, which continues to operate despite the growing number of insider trading allegations. Although the CFTC is actively pursuing individual criminal cases, it seems to have neglected to limit Polymarket's offerings in military-related areas.
