Polymarket has strengthened its trade surveillance and investigation systems ahead of the U.S. midterm elections, as the prediction market operator faces scrutiny over insider trading and American access to its international platform.
Summary
- Polymarket says its surveillance systems can identify anomalous trading as the U.S. midterm elections approach.
- The company uses blockchain analytics, machine learning and trade surveillance to detect potentially malicious activity.
- Polymarket says it has referred more than 100 cases to law enforcement, including suspected trades involving sensitive government information.
- The company says its controls block the vast majority of U.S. users from accessing its international platform under its 2022 CFTC settlement.
Reuters reported on Aug. 31 that Polymarket’s new global head of investigations and intelligence, Shana Bautista, said the company has systems capable of identifying unusual trading activity as election-related markets attract closer attention.
“I’m confident that I’m able to get the resources and the support I need,” Bautista told Reuters in her first interview since joining Polymarket in June. “I can tell you that we have the systems in place to be able to identify anomalous activity when the midterms do come.”
Polymarket prepares surveillance systems for U.S. midterms
Bautista, a former FBI investigator and Coinbase analyst, is overseeing Polymarket’s investigative work as U.S. lawmakers examine whether prediction markets could provide a venue for trading based on sensitive government or political information.
Congress has already moved toward restricting lawmakers from participating in such markets. Crypto.news previously reported that Rep. Bryan Steil was seeking to include a prediction market trading ban in a proposal that would restrict stock trading by members of Congress and their families.
Steil said lawmakers should not be trading contracts tied to elections or public policy. His proposal followed a unanimous Senate vote in April barring senators and their staff from trading on prediction markets such as Polymarket and Kalshi.
Questions over insider access have extended beyond lawmakers. A study published earlier this year examined how restrictions could affect the information produced by prediction market prices, arguing that enforcement should distinguish between traders who possess private information and participants who can influence the outcome of an event.
The research found that a blanket ban could reduce the information available in market prices, while recommending stronger penalties for participants capable of changing an outcome themselves. The findings came as Polymarket and Kalshi faced increased insider trading scrutiny from regulators and lawmakers.
Polymarket says its surveillance program uses several sources of information to detect potentially malicious activity. Bautista said the company combines machine learning, blockchain analytics, trade surveillance, open-source research and third-party services.
A new webpage will provide more public information about those controls and explain how the company works with law enforcement, according to a Polymarket spokesperson cited by Reuters.
“The market integrity program itself is not new, but what we’re putting on the record now is considerably more detail about how it operates,” Bautista said.
Blockchain activity gives Polymarket investigators a trading trail
Trades on Polymarket’s international platform settle on a blockchain, leaving transaction records publicly visible even when the people controlling individual wallets remain anonymous.
Critics have argued that pseudonymous wallet-based trading can create opportunities for misconduct. Bautista told Reuters that blockchain records can provide investigators with useful information about trading behavior and movements of funds between addresses.
Polymarket says it has referred more than 100 cases to law enforcement.
One involved a wallet linked to a U.S. soldier who prosecutors say used classified information to trade contracts concerning the capture of Venezuela’s Nicolás Maduro.
A federal judge in August paused the Commodity Futures Trading Commission’s civil case tied to the soldier while a related criminal proceeding continues. Prosecutors allege that about $409,881 was earned through 13 Venezuela-related Polymarket trades, according to the CFTC case proceedings.
The defendant has pleaded not guilty and challenged whether the prediction contracts involved in the case legally qualify as swaps.
Bautista said other referrals involved possible insider wagers concerning U.S. military actions in Iran. Reuters reported earlier in August that several trades linked to military developments had raised questions over whether some participants possessed information that was not publicly available.
Political concern has extended to federal employees with access to sensitive information. More than 40 Democratic lawmakers previously asked the CFTC and the U.S. Office of Government Ethics for guidance restricting federal employees from using nonpublic information to trade prediction contracts.
Their letter raised concerns involving political events, military developments and other contracts where government employees could have access to information before the public.
Polymarket says controls block most U.S. users
Keeping American users away from Polymarket’s international platform remains another enforcement issue for the company.
The CFTC reached a settlement with Polymarket in 2022 after finding that it had offered event-based binary options contracts without registering with the regulator. Polymarket agreed to pay a $1.4 million civil penalty and wind down markets that did not comply with U.S. law.
The settlement required the company to prevent U.S. customers from using its international operation.
Bautista told Reuters that she believes Polymarket’s current systems are sufficient to stop the vast majority of American users from accessing the international platform.
“It is difficult at scale to be able to consistently and always evade all of the guardrails we have,” Bautista said. “I do not see it being a really prevalent issue.”
Blockchain research has raised questions over how effectively those restrictions work.
On-chain research firm Allium estimated that U.S.-linked wallets traded about $571 million in political contracts on Polymarket over a one-year period despite the restrictions. The United States represented the largest national group identified in its analysis.
Allium cautioned that it could assign country labels to only a small share of political-market wallets and described its estimates as directional because blockchain activity cannot establish the identity or physical location of every trader.
The findings renewed attention on U.S. wallet activity on Polymarket’s international venue.
Federal scrutiny of the company has changed under President Donald Trump’s administration. Regulators dropped an investigation into whether Polymarket had breached its 2022 settlement, and CEO Shayne Coplan said at the time that the company had been cleared of wrongdoing.
Polymarket has taken a separate route to serve American customers through a regulated exchange.
The company returned to the U.S. market after acquiring a CFTC-registered exchange last year, creating an operation separate from the international blockchain platform that remains closed to U.S. users.
State lawsuits target prediction market sports contracts
While federal regulators oversee event contracts under commodities law, prediction market companies are fighting a separate series of disputes with state authorities over sports-related contracts.
Several states have argued that sports event contracts offered by prediction market platforms amount to gambling products that require state licenses.
Prediction market companies have disputed that position, maintaining that qualifying event contracts fall under federal commodities regulation and CFTC jurisdiction.
The conflict has produced lawsuits seeking to stop prediction market operators from offering sports contracts without state gambling licenses.
Polymarket’s regulated U.S. operation and its international platform remain separate. The international service uses blockchain-based settlement and wallet trading, while the U.S. exchange operates within the CFTC regulatory framework.
Bautista told Reuters that Polymarket intends to provide more public detail about its surveillance program as the midterm elections approach, including how the company uses blockchain analytics, machine learning and trade monitoring to identify suspicious activity and refer cases to law enforcement.
