Prediction Market Manipulation Defense

Defense Lawyers for Companies and Individuals Accused of Manipulating Prediction Markets in the United States

Our lawyers defend insiders and other individuals accused of engaging in illegal trading practices on prediction market platforms. Federal prosecutors are pursuing a wide range of civil and criminal charges in these cases, and individuals accused of trading on confidential information (or classified information) can face substantial penalties.

John W. Sellers — **Attorney John Sellers**
International Trade Team Lead
Former DOJ Trial Attorney

**Glenn Karabeika**
International Trade Team
Former HSI Special Agent

Demand for prediction markets has skyrocketed in recent years. However, as such markets have grown in popularity, so too has the prevalence of fraud. Along with insider trading, manipulating the outcome of future events is a growing concern, with individuals having the ability to significantly alter market prices in many cases.

While prediction markets differ from other financial markets in several critical respects, they also share several important similarities—particularly from an enforcement perspective. Engaging in fraud for personal gain is strictly prohibited, including making trades based on material nonpublic information. From prop bets to bets on stock price and cryptocurrency fluctuations, federal authorities are targeting all forms of fraud on these online platforms.

Matters We Handle

Our lawyers handle all matters involving allegations of prediction market manipulation and fraud under federal law. For example, we are available to provide representation in matters including:

US Commodity Futures Trading Commission (CFTC) Enforcement actions

The US Commodity Futures Trading Commission (CFTC) has primary, but not exclusive, jurisdiction over prediction markets in the United States. On prediction markets, contracts typically pay a fixed amount if a specified event occurs and nothing if it does not. As derivatives, these contracts fall within the scope of the CFTC’s regulatory oversight, and this means that fraud in the marketplace generally falls within the scope of the CFTC’s regulatory oversight as well.

US Securities and Exchange Commission (SEC) Enforcement Actions

The US Securities and Exchange Commission (SEC) has oversight of prediction markets to the extent that they involve securities-based event contracts and exchange-traded funds (ETFs). When investors use inside knowledge of material non-public information or manipulative tactics to rake in profits from favorable positions at the expense of other platform users, this can pose substantial risks in the event of an SEC enforcement action or securities litigation involving the Commission.

US Department of Justice (DOJ) Investigations

The US Department of Justice (DOJ) also has a hand in prediction market manipulation enforcement. It frequently gets involved in cases involving extremely high levels of forecasting accuracy, suspicious timing of significant trades, what appears to be collusion with foreign actors, and other cases of suspected significant fraud. The DOJ has full authority to investigate cases of suspected prediction market manipulation, and it has already investigated several high-profile cases. These include cases involving allegations of US Special Forces operators placing trades related to the capture of former Venezuelan President Nicolás Maduro and allegations of political candidates placing trades on their own candidacy, among others.

Criminal Prosecutions for Insider Trading and Other Federal Crimes

When business insiders breach their fiduciary duty, when traders manipulate the value of contracts, and when other parties engage in fraudulent practices on prediction market platforms, this can lead to criminal prosecution under various federal statutes. Prosecution under such laws has the potential to result in not only substantial fines, but also federal imprisonment.

Federal prosecutors are increasingly pursuing charges when traders’ efforts to improve forecasting cross the line from legitimate market research to illegal market manipulation. Reports indicate that prediction market manipulation is a priority for the DOJ, and we are seeing this in our practice as well.

Key Takeaways for Prediction Market Participants Facing Federal scrutiny

As media reports have highlighted cases of suspected fraud on popular prediction markets, public opinion of these markets has begun to shift. Federal authorities have also taken notice. While placing trades on prediction markets is far from traditional gambling, the CFTC, SEC, and DOJ are all monitoring these markets for signs of fraud that are akin to those in sports betting—as well as signs of fraud that are akin to those in other types of commodities fraud and securities fraud cases.

While large-scale speculation involving wealthy traders buying massive blocks of contracts is likely to garner attention from federal authorities, smaller-scale frauds can (and do) lead to federal investigations and enforcement proceedings as well. For example, in 2026, two individuals were indicted for allegedly manipulating prediction markets in a relatively small-scale and nondescript case involving allegations of using classified information for insider trading.

While prediction markets’ identity verification procedures and account controls (as well as their position limits and “whale” caps) are intended to hinder coordinated market manipulation, they are not foolproof. As traders find new ways to exploit vulnerabilities, federal authorities are doing their best to keep pace. Federal authorities are targeting physical interference and tampering in prediction markets as well, in addition to targeting settlement manipulation involving efforts to exploit weaknesses in the data sources used for contract resolution.

In short, accusations of prediction market manipulation can take many different forms, and the CFTC, SEC, and DOJ are all prioritizing enforcement in this area. For traders who are facing scrutiny, it is important to engage experienced defense counsel promptly.

All Federal Prediction Market Manipulation Cases Pose Substantial Risks

From market surveillance to AI-driven data analysis and on-chain anomaly detection using automated tools, federal authorities are using various methods to detect suspicious trading behaviors on prediction market platforms. In this same vein, from artificially triggering price spikes that result in herding behavior to using classified information to engage in insider trading, allegations of prediction market manipulation can take many different forms.

While CFTC Regulation 180.1 prohibits fraud in derivative markets (including prediction markets), prediction market manipulation also falls under several federal statutes—including statutes that allow for criminal prosecution. As a result, facing allegations of prediction market manipulation can pose substantial risks, and targeted individuals must be prepared to protect themselves by all means available.

FAQs: Federal Investigations and Enforcement Proceedings Involving Event Contracts on Prediction Markets

How do prediction markets work? When can traders face allegations of manipulation or fraud?

Prediction markets involve trading contracts that range in price from $0.01 to $1. Good prediction market contracts must have clear definitions and independent settlement sources, and contract specifications must include clear definitions and conditions to prevent exploitation.

These contracts, which qualify as derivatives under federal law, are based on event probabilities. If an event that is the focus of a contract occurs, traders who hold contracts at the time of occurrence receive $1. If the event does not occur, traders who hold contracts receive nothing. While prediction markets can aggregate information more accurately than polls, there is no guarantee that anything will happen in the future, and this means that even investors who make what appear to be safe trades can (and do) suffer losses.

The two most popular prediction markets—Kalshi and Polymarket—operate in slightly different ways. Kalshi operates as a centralized limit order book regulated by the CFTC, while Polymarket uses a hybrid-decentralized order book for trading. While this impacts their regulatory oversight in the US, it does not fundamentally alter traders’ exposure to allegations of manipulation or fraud.

Prices in prediction markets reflect basic supply and demand dynamics. But, while prediction markets may seem elegant in their simplicity, they pose several risks for manipulation and other forms of fraud. Even though improving oracle robustness through reliance on multiple independent sources and implementing liquidity improvements that make it more challenging for manipulators to affect prices can reduce the prevalence of fraud, fraud still can (and does) occur.

Which federal agencies regulate prediction markets?

While prediction markets fall primarily within the jurisdiction of the US Commodity Futures Trading Commission (CFTC), the US Securities and Exchange Commission (SEC) has a hand in prediction market regulation as well. The US Department of Justice also gets involved in significant cases in which civil enforcement litigation or criminal prosecution may be warranted. The DOJ pursues civil and criminal cases involving prediction market manipulation across the country—from the Southern Districts of Florida and New York to the Northern District of California.

When can prediction market manipulation be prosecuted as a federal crime?

Prediction market manipulation can be prosecuted as a federal crime under various circumstances. Broadly, to pursue fraud charges, federal prosecutors must have evidence of knowledge, willfulness, or intent. Thus, if prosecutors can show that a trader used inside information, attempted to manipulate the market for a contract, or directly influenced the outcome of an event in real life, these are all acts that can lead to fraud charges under federal law.

How can the government identify me if I trade anonymously on a prediction market?

Federal authorities have various tools at their disposal for identifying anonymous traders—and we have seen multiple cases of the government identifying anonymous traders who allegedly manipulated markets and event outcomes both online and in real life. From third-party subpoenas to forensic accounting methods, federal authorities (i.e., the CFTC, SEC, and DOJ) are currently using all of the tools they have at their disposal to expose and prosecute prediction market fraud.

Speak with a Prediction Market Manipulation Defense Lawyer at Oberheiden PC

If you need to speak with a prediction market manipulation defense lawyer, we encourage you to contact us promptly. Call 888-680-1745 or contact us confidentially online to schedule a free consultation with a senior lawyer at Oberheiden PC.

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