Insider trading shocks the prediction market? US lawmakers propose legislation to regulate and trigger industry changes

U.S. Representative Ritchie Torres is working on drafting the “2026 Financial Prediction Market Public Integrity Act,” aimed at prohibiting federal officials from using insider information to trade in prediction markets. This legislative initiative stems from a widely publicized incident: shortly before the U.S. military launched an attack on Venezuela and arrested President Maduro, a newly registered account on Polymarket placed precise bets, ultimately profiting over $400,000 with an initial stake of approximately $32,000.

The Incident Details

A new account created on December 27, 2025, quietly appeared on the Polymarket platform, with an unusually simple and clear transaction record. This account made only four trades, all revolving around the possibility of U.S. intervention in Venezuela and Maduro’s political fate.

The day before the U.S. military action, the account wagered over $30,000 on Maduro stepping down before January 31, 2026. At that time, market data showed the “Maduro stepping down” contract price briefly dropped to $0.07, with the market generally estimating only a 5% to 6% probability of this event occurring. However, just hours after placing the bets, news broke that Maduro had been detained, and the contract was immediately settled. The account ultimately earned over $400,000 in profit, a return of 1242%, and this abnormal trading activity was quickly exposed on social media.

Regulatory Response

In response to this apparent insider trading incident, New York Democratic Congressman Ritchie Torres swiftly announced plans to introduce the “2026 Financial Prediction Market Public Integrity Act.” The core of the bill is to prohibit federally elected officials, political appointees, and employees of the executive branch from trading prediction market contracts related to government policies or political outcomes when they possess non-public information obtained through their official duties.

According to the bill, this restriction applies to buying, selling, or exchanging prediction market contracts related to government policies, actions, or political results on interstate commercial platforms. The bill aligns with existing insider trading standards in traditional financial markets but extends its scope to prediction markets.

Industry Status

Prediction markets, as a rapidly growing sector, saw trading volumes exceeding $44 billion in 2025. These platforms allow traders to predict and bet on the outcomes of various events, ranging from sports competitions to political elections. Polymarket claims to be the world’s largest prediction market, reporting that billions of dollars in predictions were traded on its platform in 2025.

The development of this sector is not limited to political event predictions. In November 2025, Polymarket reached a multi-year partnership agreement with TKO Group Holdings, becoming the official exclusive prediction market partner for UFC and Zuffa Boxing. Under the agreement, UFC and Zuffa Boxing will be among the first sports organizations to directly integrate prediction market technology into live fan experiences.

Regulatory Challenges

The U.S. Commodity Futures Trading Commission (CFTC) faces significant challenges in regulating the rapidly expanding prediction markets. Limited regulatory personnel make it difficult for enforcement agencies to effectively monitor these markets, especially given that sports-related contracts dominate trading volume. Critics point out that due to insufficient surveillance tools, these markets pose insider trading risks. The CFTC attempts to strike a balance between innovation and regulation, but concerns about investor confidence and market legitimacy persist amid a lack of sufficient staffing and resources.

Notably, Polymarket has faced regulatory hurdles. After withdrawing from the U.S. market in 2022 due to regulatory issues, the platform has been striving to re-enter. Sources indicate that the platform’s current primary goal is to resolve issues related to re-entry into the U.S. market before considering plans to issue a native cryptocurrency in 2026.

Industry Reactions and Future Outlook

In response to the insider trading allegations related to Maduro, another prediction platform, Kalshi, explicitly stated that its platform rules prohibit insiders or decision-makers from trading based on material non-public information. The differing stances on insider trading among various platforms reflect a lack of unified standards within the prediction market industry regarding regulation and self-discipline.

Polymarket attributes the account hacking incident to third-party tools. According to Cointelegraph, multiple Polymarket users reported their account balances being wiped after suspicious login attempts. Polymarket stated it has identified and fixed security issues caused by vulnerabilities introduced by third-party authentication service providers.

The future development of prediction markets is closely tied to the regulatory environment. With the introduction of the Torres Bill, prediction markets may face stricter regulatory scrutiny. This legislative action not only targets political prediction markets but could also have far-reaching impacts on the entire industry. Industry observers are closely monitoring the legislative process and how it balances innovation with investor protection.

Turning Point

The prediction market industry is at a crossroads. On one hand, partnerships with mainstream sports organizations demonstrate its commercial potential; on the other hand, insider trading issues exposed by the Maduro incident highlight deficiencies in regulation and transparency within this emerging field. If the Torres Bill is passed, it will establish clear behavioral boundaries for prediction market trading, especially concerning political and major public events.

The news of Polymarket planning to issue a native cryptocurrency in 2026 adds further uncertainty to industry development. Although data from prediction platform Kalshi suggests that the market’s expectation of Polymarket announcing a token within 2025 has fallen below 15%, indicating that the project team may be adopting a cautious approach, prioritizing regulatory compliance.

What makes prediction markets unique is that they serve both as financial tools and as mechanisms for aggregating information. When traders make judgments based on different information, market prices reflect collective wisdom. However, when insider information is abused, this mechanism fails. The healthy development of prediction markets in the future will require balancing the encouragement of information flow with the prevention of information misuse, which depends on platform self-regulation, regulatory standards, and technological innovation working together.

For ordinary users, it is important to remain rational when participating in prediction markets, recognizing the risks of information asymmetry, especially concerning contracts related to political and major public events. While increased regulation may temporarily limit certain trading opportunities, in the long run, it will help establish a fairer, more transparent prediction market environment.