SEC eyes enforcement action over prediction market insider trading

The U.S. Securities and Exchange Commission (SEC) has warned that prediction markets offering contracts linked to corporate earnings and business performance could face enforcement action over insider trading, fraud and market manipulation.

SEC Enforcement Director David Woodcock said the agency was monitoring activity on prediction platforms and expected to pursue potential securities violations, according to an October 29 Bloomberg report.

“We’re following that very closely,” Woodcock said. “We have to be ready to act when people are committing fraud or committing other securities violations, and I think we are going to be.”

He added that enforcement activity was likely “in the future, for sure,” although he did not identify a particular company or announce new charges.

SEC targets prediction markets tied to company earnings

Woodcock’s comments centered on contracts that allow traders to bet on financial results or key performance indicators, commonly known as KPIs. Such products can involve outcomes tied to quarterly earnings, sales figures or other measures of a listed company’s business performance.

The SEC oversees securities markets, while the Commodity Futures Trading Commission (CFTC) regulates many derivatives contracts. Prediction markets can raise questions about which agency has authority when a contract’s outcome depends on a publicly traded company.

The regulator has already approved a Cboe Global Markets proposal involving binary options tied to corporate performance measures. The contracts allow traders to take positions on outcomes such as Citigroup’s earnings per share or Apple’s iPhone sales revenue.

In its approval order, the SEC determined that the proposed instruments qualified as options on securities under federal law.

The decision addressed Cboe’s particular products and did not establish that every prediction contract involving a company’s performance automatically falls under SEC jurisdiction.

SEC and CFTC seek clearer rules

The two federal agencies have spent several months examining how existing derivatives laws apply to newer financial products.

In June, the SEC and CFTC requested public comments on the definitions of swaps, security-based swaps and products that combine features of both.

Their questions covered market surveillance, enforcement cooperation and the treatment of contracts that could involve overlapping regulatory authority.

SEC Chairman Paul Atkins said the agencies wanted clearer rules for event-based products, including situations where established financial exchanges and newer trading platforms offer comparable instruments.

The CFTC has since taken further regulatory steps. On October 19, an interim rule excluding casino-style gambling products from the definition of swaps took effect.

A separate proposed rule would explicitly include certain event contracts involving sports, politics, culture and weather within the swap definition. Public comments on that proposal are due November 18.

Kalshi and Polymarket face scrutiny

The CFTC maintains primary oversight of federally registered prediction exchanges, including Kalshi and Polymarket’s U.S. operations.

Its jurisdiction has become the subject of legal disputes with states that consider some event contracts, particularly sports-related products, to be unlawful gambling.

On October 26, the agency filed a lawsuit against Utah seeking to prevent state officials from enforcing gambling restrictions against federally regulated exchanges.

As crypto.news reported in its coverage, the regulator identified nine other states where similar federal-state jurisdiction disputes were already underway.

Kalshi has separately challenged state restrictions in several jurisdictions. A September appellate ruling involving Ohio and Tennessee followed earlier decisions that reached different conclusions about the relationship between federal derivatives law and state gambling rules.

Meanwhile, the CFTC is investigating whether Polymarket complied with restrictions on U.S. access to its offshore platform under a 2022 settlement, Reuters reported on October 27.

The inquiry concerns location controls, advertising and customer protections. Polymarket has maintained that it prohibits users from bypassing geographic restrictions.

Insider trading concerns reach prediction platforms

Federal authorities have already brought cases involving allegations that traders used privileged information to profit from event contracts.

According to Bloomberg, the CFTC pursued enforcement matters involving alleged manipulation and improper trading on Kalshi during 2026.

In April, federal prosecutors and the regulator accused a U.S. soldier of using classified information to earn more than $400,000 through Polymarket bets connected to the capture of Venezuela’s former president Nicolás Maduro. The defendant pleaded not guilty, and the case remains pending.

Separately, New York City officials examined the marketing practices of several prediction platforms, including allegations surrounding the promotion of insider trading.

Kalshi and Polymarket have said they prohibit insider trading, monitor suspicious activity and cooperate with regulators when potential misconduct arises.