Employee “Betting” in Prediction Markets: New Ris...

In the last year, prediction markets (once niche, now everywhere) have grown into a billion‑dollar frontier for trading on real‑world events. Platforms like Polymarket and Kalshi allow users to buy and sell contracts on outcomes ranging from the winner of awards shows to geopolitical crises. While these markets can aggregate insight about crowd expectations, they also pose a new class of ethical and compliance risks that traditional governance frameworks typically don’t yet address.

As compliance teams know, trading on material non‑public information in securities markets is unlawful. Yet employees with uniquely sensitive corporate knowledge—for example about product launches, earnings expectations, mergers, or other confidential developments—could just as easily trade on that information through a prediction market, and, in the process, inadvertently disclose sensitive or proprietary information.

But given the rapid rise and popularity of these markets, combined with the confusing legal landscape, there’s real risk for compliance leaders.

The Maduro Prediction Market Incident: A Warning Sign

A recent example highlights these risks.

In early January 2026, an anonymous user on Polymarket placed a relatively modest position, roughly $32,000, predicting that Venezuelan President Nicolás Maduro would be ousted from office by the end of the month. Shortly thereafter, reports emerged of a U.S. military operation resulting in Maduro’s capture. The prediction‑market contract paid out just over $400,000, a more than 12‑fold return in less than 24 hours.

The timing and magnitude of the wager sparked widespread suspicion that the trader might have had access to classified or non‑public information, effectively engaging in a form of insider trading, albeit outside traditional securities markets.

In response, U.S. Representative Ritchie Torres introduced the Public Integrity in Financial Prediction Markets Act of 2026, which would prohibit government officials from trading on prediction markets with access to material non‑public information, a legislative testament to the concern these markets now raise.

Suddenly this evolved beyond a sensational headline to a genuine regulatory and ethical fault line.

A Corporate Example: $1 M from Google Search Trades by Potential Insider

Another real‑world episode crystallizes this concern. In late 2025, a Polymarket trader using the pseudonym “AlphaRaccoon” reportedly netted over $1 million in less than 24 hours by placing highly accurate wagers on markets tied to Google’s 2025 “Year in Search” rankings.

The wallet correctly predicted the outcome in 22 of 23 related contracts, including several long‑odds bets, raising immediate speculation on social media and in crypto‑finance forums that the trader might have acted on non‑public information or early access to data before public release.

Although there has been no official confirmation of insider status or legal action, the precision and timing of the trades fueled debate about how prediction markets could be exploited by those with privileged knowledge, whether due to early data leaks, internal forecasting systems, or other non‑public signals.

This incident underscores the broader point: even absent formal securities violations, prediction markets can become alternative channels for profiting from confidential information, making them a compliance blind spot that traditional insider‑trading frameworks do not currently cover.

In this case, the disclosure risk was relatively limited, as leaked search rankings are not among a company’s most sensitive secrets, but had the same pattern of highly confident “signal bets” appeared around a material event such as a product launch, earnings report, or merger, the reputational, regulatory, and market impact for the company could have been significant.

What Are Prediction Markets Like Polymarket and Kalshi?

To understand the compliance threat, it helps to see how these systems work in practice:

Polymarket is a cryptocurrency‑based prediction market built on blockchain rails that allows users to trade on outcomes from politics to economics to pop culture. It was fined by the U.S. Commodity Futures Trading Commission (CFTC) in 2022 for operating as an unregistered derivatives platform and has since returned to some U.S. service under adjusted regulatory frameworks.
Kalshi is a CFTC‑regulated prediction market exchange that offers similar event‑based trading but with a more formal compliance structure. Kalshi’s rules explicitly prohibit insiders from trading markets where they have non‑public information or influence.

These platforms sit in a regulatory gray zone: they are neither traditional stock markets policed by the SEC nor unregulated gambling sites. Instead, they are overseen by a patchwork of derivatives authority and often operate across jurisdictions with varying legal definitions.

From a corporate compliance perspective, the core risk is deceptively simple:

Employees with privileged internal knowledge could use that information to enter prediction markets, thereby gaining financial advantage from confidential corporate events. These “signal bets” could even be discovered within prediction markets, effectively leaking confidential information.

Examples might include:

A production manager at a streaming service learning about a secret sequel release before the public, and betting on that outcome on Polymarket.
An executive at a pharmaceutical firm knowing that a major trial will succeed and wagering on regulatory approval dates.
A finance or strategy employee knowing their company will beat or miss earnings, and wagering on that outcome in a prediction market before results are public.

Unlike the stock market, where laws, surveillance, and compliance infrastructure focus on insider‑information trading, prediction markets lack parallel compliance controls or clear prohibitions. Some platforms like Kalshi attempt to manage this risk proactively, but others—including Polymarket—have more permissive frames and, in some cases, leadership that has publicly argued insider participation can be beneficial for price discovery.

Immediate Compliance Steps: Closing the Loop in Your Code of Conduct

Compliance leaders shouldn’t assume employees think about prediction markets the same way that compliance professionals do. So if you haven’t already, your company should define its position on prediction markets and explain to employees what they can and can’t do. Consider the following:

Expand Insider‑Trading Policies Beyond Securities
- Explicitly state that prediction‑market trading on confidential corporate information is prohibited, regardless of whether the instrument is considered a security or gambling contract under law.
- Define prediction markets and similar derivative platforms in policy language.
- Clarify that trading on internal developments such as product releases, earnings, strategic decisions on these markets is forbidden.
Include Prediction Markets in Disclosure and Pre‑Clearance Rules
- Require employees to declare participation in prediction markets, especially if questions relate to the company’s business or key external events.
- Apply pre‑approval workflows similar to those for stock trades.
Educate Employees on the Risks
- Add prediction‑market guidance to existing code‑of‑conduct or training programs.
- Use real examples like the Maduro Polymarket incident to illustrate consequences, and create hypotheticals relevant to your organization.
- Example resource: Ethena’s Code of Conduct Training.
Monitor Public Forums and Social Signals
- Track unusual trading patterns tied to your company’s news flow.
- Integrate external market signals into compliance dashboards to detect anomalies.
Build Clear Enforcement Protocols
- Set out consequences for violations, including disciplinary action and mandatory reporting to regulators when appropriate.
Align with Legal Counsel on Global Enforcement
- Work with legal counsel to understand jurisdictional exposure, especially where employees might access offshore platforms.

Why Predictive Markets Matter for Compliance

Ignoring these markets won’t make them go away. As they become more mainstream—with institutional capital entering the space and Wall Street firms employing prediction‑trading desks—the likelihood of misuse rises correspondingly.

Left unaddressed, these platforms could become unintended leakage points for corporate secrets. Not only could insider trading unfairly financially benefit those doing the trading, but “signal bets” have the potential to leak company secrets in countless ways—from product launches to earnings reports.

The need for forward‑looking compliance isn’t speculative. It’s a necessary evolution of good governance in an era where insider trading can show up in unexpected places.

A New Frontier for Insider Risk

Prediction markets like Polymarket and Kalshi are fast becoming fixtures in global financial conversations. As they do, they expose gaps in how we think about insider trading, employee conduct, and corporate ethics. Rather than wait for regulators to act, compliance teams should proactively update codes of conduct, educate personnel, and monitor evolving risks.

By doing so, companies will not only protect themselves from leaks and ethical breaches, but also signal to employees, stakeholders, and regulators that they understand the full scope of the modern risk landscape—including the parts that don’t yet fit neatly into existing law.