Who Is the Insider When the Market Is the News?

Insider trading law originally developed around stocks. The typical case involves a company secret, such as a pending merger or a poor earnings report, and someone who trades before that information becomes public. Prediction markets operate on different information. Their contracts settle on elections, Federal Reserve decisions, court rulings, and military operations, and no company owns that information the way it owns its earnings. That leaves open the question of who qualifies as an insider.

In April, the CFTC provided its first answer. It charged an active-duty Army Special Forces master sergeant with insider trading, alleging that he used classified information about the operation to capture Nicolás Maduro to trade event contracts on Polymarket for more than $400,000 in profits. Federal prosecutors in Manhattan filed parallel criminal charges the same day. He has pleaded not guilty, and his criminal trial is scheduled for December. A second case followed in May, also involving trades on Polymarket, alleging that a technology company employee used confidential corporate information to earn roughly $1.2 million. Neither case has been decided.

Together, the cases show that traders are asking the wrong question. The commodities laws have never depended on who counts as an insider.

The Law Focuses on the Information, Not the Person

Securities insider trading law is built on a relationship. An officer, a director, or an outside adviser owes a duty to shareholders, and trading on the company’s confidential information breaches that duty. Commodities law developed differently because futures traders have no shareholders. Instead, the rule focuses on how the trader obtained the information.

Under the Commodity Exchange Act and CFTC Rule 180.1, the question is whether a person obtained material nonpublic information under a duty to keep it confidential and then traded on it. That duty can arise from an employment relationship, a client relationship, a security clearance, or a contract. A trader who breaches that duty and trades on the information violates the law regardless of title or position.

Congress added a second provision in 2010 directed at government information. Known as the Eddie Murphy rule, after the orange juice scheme in Trading Places, it prohibits federal employees from trading on nonpublic information obtained through their positions and prohibits others from trading on that information when they know it was obtained improperly. The April case was the first time the CFTC invoked it.

Applying the Test

The test produces clear answers in many situations. A Supreme Court clerk who trades on an unreleased opinion violates a duty of confidentiality to the Court and trades on government information. A congressional staffer who bets on a vote after reviewing the whip count does the same. A Federal Reserve economist who trades ahead of a rate decision falls in the same category.

Other situations are less clear. A reporter who learns an election call from a source before it airs, a campaign volunteer who overhears internal polling, or a contractor who sees a draft rule at a federal agency each present the same question: did the person have a duty to keep the information confidential, and did they breach it? Those answers will depend on the facts, and cases like these will define the boundaries over the next several years.

The test also excludes a large group of traders. A trader who bets on a hurricane’s landfall after studying weather data owes no duty to anyone. The same is true of a lawyer who listens to oral argument and concludes the government will lose, or an analyst whose election model outperforms the market. The statute does not prohibit accurate prediction based on public information and independent judgment. That is what these markets are designed to reward.

How Enforcement Builds These Cases

I spent time as a trial attorney at the CFTC and have defended enforcement matters since. From the government’s perspective, prediction markets are a comparatively easy place to build an insider trading case.

Every trade is timestamped. On a regulated venue, every account is tied to a verified identity. Every contract has a defined moment when the outcome becomes public. A large position taken shortly before that moment, by an account with little or no history in that market, draws attention from surveillance. The investigation then turns to who holds the account, what they do for a living, and what they knew. The April complaint describes that pattern: unusually well-timed trades traced to a person with access to the underlying information.

Venues play a role as well. The CFTC has stated that prediction market operators have an independent duty to maintain audit trails, conduct surveillance, and enforce their rules against insider trading and manipulation. Traders should expect more account reviews, more questions about the basis for a position, and more referrals to the agency. A venue that fails to address suspicious trading faces its own regulatory exposure.

What Remains Unresolved

Several questions remain open. How far does a duty of confidentiality extend once information passes from the person who held it? Is a tip from a government employee sufficient to put the recipient on notice? How will courts evaluate materiality for a short-dated binary contract, where nearly any nonpublic information could affect the outcome? The December trial and the second pending case will begin to address them.

For traders, the practical rule is more direct than the open legal questions suggest. Information obtained through a job, a security clearance, or a confidentiality obligation should not be traded on. Information developed from public sources and independent analysis can be. The law focuses on how a trader came to know something, not on how accurate the prediction turned out to be.

That distinction matters for the future of these markets. Prediction markets function because they reward participants who analyze public information more effectively than others. They lose credibility if they reward participants who simply have access to information the public does not. The CFTC’s first cases are an effort to maintain that distinction, and the outcome will influence how much confidence these markets earn.