U.S. Lawmakers Target Insider Trading on Prediction Markets

By: Eliza Bennet

In response to a controversial trade on prediction markets, U.S. Representative Ritchie Torres is preparing to introduce groundbreaking legislation aimed at preventing insider trading on platforms where geopolitical events are forecasted. This proposed regulation follows an eye-catching $400,000 profit made from a single bet on Polymarket that anticipated the capture of Venezuelan President Nicolás Maduro.

The underpinning of the proposed legislation, the Public Integrity in Financial Prediction Markets Act of 2026, seeks to prohibit federal elected officials, political appointees, and executive branch employees from engaging in prediction market contracts linked to governmental policy or political outcomes when they possess nonpublic information. This move sends a strong message aimed at protecting the integrity of these financial prediction markets, which have raised alarms due to trades that allegedly exploit insider knowledge.

This legislation emerges following revelations that a newly created account on Polymarket wagered approximately $32,500 that Maduro would be out of power by January 31, 2026. This significant bet, held at just $0.07 per share, resulted in explosive returns after the abrupt capture of Maduro was publicly announced following U.S. action, reinforcing suspicions of insider trading. Critics, including social media users and investors, quickly flagged the timing of this bet as suspicious, given its strategic and timely nature.

While prediction markets like Kalshi had priced similar outcomes at higher rates, this particular trade's timing has fueled debates over the potential misuse of such platforms. It has also spotlighted the current inadequacies in policing trades based on material nonpublic information. Amidst the unfolding developments, the proposed bill aims to align prediction market regulations with those of traditional securities trading, seeking to curtail unethical practices by extending insider trading laws to the digital prediction domain. As the legislative process unfolds, there is wider scrutiny of prediction markets, which could lead to a significant shift in how these speculative avenues function under legal and regulatory oversight.