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Author: Zhao Ying, Wall Street News
The prediction market is facing the test of suspicion of insider trading. According to The Information, multiple Polymarket accounts have recently placed bets and made profits before the release of important products by OpenAI and Google, raising questions in the market about whether these platforms are being used by insiders, prompting more and more technology companies and financial institutions to include prediction markets within the scope of insider trading supervision.
A week before OpenAI released GPT-5.2 on December 11, several Polymarket accounts bet that the company would release a new large language model before December 13.After the product was released, four of the accounts made a total profit of more than $13,000.Also last week, a Polymarket account made more than $1 million in a single day by accurately betting on Google search data for 2025.These abnormally behaving accounts are suspected to be operated by company insiders.
This phenomenon is driving changes in corporate policy.Conway Dodge, a partner at KPMG, said the number of conversations with corporate clients about whether to include prediction markets in insider trading policies has at least doubled in the past six months.Robinhood updated its policy to cover prediction markets more than a year ago, and Coinbase expanded its policy a few months ago to “prohibit employees, including executives, from participating in prediction markets.”OpenAI and Anthropic said their policies clearly restrict employees from using confidential information for personal gain, including placing bets on prediction sites.
The rapid growth of prediction markets has heightened regulatory urgency.According to data from crypto data provider Artemis Analytics, Kalshi’s trading volume has surged approximately five-fold in the past six months, with average daily trading volume reaching $183 million in the past seven days.Polymarket’s average daily trading volume jumped more than six times to $197 million.
Suspicious transaction patterns raise concerns
The “foresight” displayed by some accounts has become the focus of suspicion.These users repeatedly place large bets on the same company ahead of announcements, with extremely high accuracy.
According to transaction records shown on Polymarket, four accounts betting on OpenAI’s release of a new model entered the market a week before the product was released.When GPT-5.2 is released as scheduled, these accounts that have been deployed in advance will quickly realize their profits.
What sparked more controversy last week was a bet on Google.The account made more than $1 million in one day through a series of bets that accurately predicted Google’s search data for 2025.The performance sparked widespread suspicion among Internet commenters that a Google insider might be behind the account.A Google spokesman declined to comment on whether the company has insider trading rules for prediction markets.
As artificial intelligence occupies more of the public’s attention, these prediction sites are increasingly offering betting options related to tech product launches—topics that are too niche for traditional betting sites.On Kalshi, for example, users can bet 48 cents that Jony Ive, a designer currently working with OpenAI, is developing a clip-on device for the company, or 23 cents that he is developing a head-mounted display.If the bet is correct, the contract is worth $1.
Legal and regulatory gray areas
The issue of insider trading in prediction markets lies in a regulatory blind spot.U.S. securities laws prohibit trading based on “material non-public information,” but the U.S. Securities and Exchange Commission (SEC) does not regulate prediction market contracts because they are not securities.
Lawyers said jurisdiction over such cases would fall in the hands of the Commodity Futures Trading Commission (CFTC), which regulates futures trading, or the Justice Department.Nonetheless, profiting from confidential information in prediction markets may violate an employee’s legal obligations to their employer.”It’s a fraud similar to embezzlement because you’re secretly using the information for your own benefit,” said George Canellos, an attorney at law firm Milbank LLP who specializes in corporate governance and securities law.
Dodge, who previously worked in the SEC’s enforcement division, believes this “may be the next issue that financial institutions and other clients need to start thinking about.”
On Thursday, several companies including Kalshi and Coinbase said they had formed a new industry group that would advocate for federal rather than state-level regulation.One of the group’s first initiatives will focus on establishing national standards against insider trading.
Conflicting stances from industry leaders
Compounding the problem, industry leaders sometimes suggest that employees should be allowed to bet on their own company’s activities.Coinbase CEO Brian Armstrong revealed at last week’s New York Times DealBook Summit that he was recently asked whether insider trading should be allowed in prediction markets.
Armstrong responded that the issue was “not clear-cut.”For example, he said, if people wanted to know whether the Suez Canal would reopen, market predictions would be more accurate if admirals on ships in the canal were allowed to participate in betting.But on the other hand, “you want to keep these markets intact.”
In fact, some companies, including Google and Anthropic, have built their own in-house prediction markets.Employees can bet on things like when a team will complete a project without using real money.
Dan Schwarz, who built Google’s current prediction market and serves as chief technology officer of prediction site Metaculus, said that in these cases, the market predictions are kept within the company and therefore do not harm the company’s interests.With these internal prediction markets, “you’re not trying to prevent insider trading, you’re trying to enable insider trading. You’re trying to get people to reveal what they know.”
Prediction markets are expanding rapidly
The focus on regulation of prediction markets comes at a time when these platforms are experiencing explosive growth.Kalshi and Polymarket have seen a surge in activity over the past year after users flocked to bet on the 2024 presidential election.Both sites allow users to buy event contracts for less than $1—derivatives that pay investors who correctly guess the outcome of an event.Users pay for the contract up front, and if they guess correctly, they get their funds back and make a profit.
The flexibility to bet on “any difference of opinion,” as Kalshi’s co-founder puts it, makes prediction markets extremely popular.Kalshi, which operates under CFTC regulation, has seen trading volumes surge approximately fivefold in the past six months, with average daily trading volume reaching $183 million in the last seven days, according to data compiled by crypto data provider Artemis Analytics.
In September, Polymarket said the CFTC had approved it to offer services to U.S. users, after the agency banned it from accepting those transactions three years ago.Trading volume on the platform jumped more than sixfold to an average of $197 million per day.Investors are racing to back these companies at ever-higher valuations.
Robinhood operates its own prediction market, and Coinbase plans to launch a prediction market next week.
