What Do The First Prediction Market Insider Charges Mean For Individual Traders?

Federal authorities are getting ready to drag a US servicemember and a KPMG employee into court over prediction market insider trading.

This follows earlier charges against Special Forces soldier Gannon Ken Van Dyke and Google engineer Michele Spagnuolo. The prosecutions confirm something the industry can no longer dodge: using secret intel to trade on prediction platforms will land you in front of a federal judge.

Prediction markets have experienced huge growth, with trading volumes on Kalshi and Polymarket hitting nearly $24 billion in April 2026 – a nearly fivefold increase in just six months. With that kind of capital moving through these platforms, regulators took notice and this crackdown is the result.

Breaking Down The Allegations

At the heart of the servicemember case are Polymarket wagers tied to active military operations. According to sources close to the investigation, the person in question netted over $1 million betting on strikes in Iran and Venezuela. Federal prosecutors in Manhattan and Washington are coordinating with the CFTC on the inquiry, though the person remains unnamed and uncharged for now.

The KPMG case involves a separate party who allegedly had access to non-public information through their client work, then traded on whether a specific public company would beat analysts’ consensus estimates for quarterly earnings. Neither the employee, the company nor the platform involved has been identified. Both cases are expected to result in charges this autumn, though final decisions haven’t been confirmed.

These incoming charges join two high-profile cases already moving through the courts. Army Green Beret Van Dyke was charged in April after allegedly using classified military intelligence to gain more than $400,000 on Polymarket, alongside separate charges filed against Google engineer Spagnuolo.

By submitting an amicus brief in the Van Dyke trial, the CFTC made its stance quite clear: prediction platforms are regulated financial markets, not gambling sites. Van Dyke’s lawyers are contesting that claim, insisting these blockchain bets are simple wagers, though the court has yet to rule.

How Regulators Are Closing The Legal Loophole

Prediction markets historically existed in a legal grey area because traditional insider trading law was built for equity markets, not people placing wagers on corporate data releases.

Prosecutors are now using the Commodity Exchange Act to close that loophole, treating event contracts on platforms like Polymarket as regulated commodities. Treating event contracts as commodities means that using non-public information to trade on them carries the same insider trading penalties as doing so on a public stock exchange.

Pursuing both Justice Department criminal charges and parallel CFTC civil enforcement shows that federal authorities have clearly settled on this interpretation. The pending cases confirm that the Van Dyke and Spagnuolo prosecutions are the beginning of a consistent enforcement posture.

Major financial institutions are already taking action too. The Royal Bank of Canada has instructed employees handling material non-public information to avoid prediction markets entirely. Meanwhile, the Bank of Nova Scotia prohibits staff from using these platforms to speculate on markets, indices or companies. The Bank of Montreal confirms its code of conduct covers non-public information regarding the bank and its clients.

Instead of waiting on final legal precedents, compliance leaders are moving quickly to stay ahead of prosecutors.

Key Takeaways For Individual Traders And Businesses

The reality for anyone handling material non-public information is unambiguous: trading on prediction markets using that insight carries criminal liability under the regulations prosecutors are using.

The defence arguments raised in the Van Dyke case – claiming these are unregulated gambling products outside CFTC oversight – have failed to succeed in court or win judicial approval. Treating the grey area as a legal safe harbour is a major gamble.

Companies whose employees handle confidential client information, quarterly earnings or sensitive government data should adapt quickly. Compliance guidelines require explicit updates to address prediction platforms. Staff using insider knowledge to trade on platforms like Polymarket is no longer a theoretical compliance debate, given that prosecutors have now clearly established it as a criminal offence.

The sector itself faces a regulatory reckoning that volume growth had deferred. Platforms that benefited from operating in a grey area are now operating under criminal enforcement scrutiny. Whether the CFTC’s jurisdictional claims survive ongoing legal challenges will shape the future of market oversight.

Regardless of the outcome, the trajectory is clear: prediction markets are being treated as regulated financial instruments, and anyone trading on them with non-public information is being prosecuted accordingly.