US Regulators Target Prediction Markets Amid Insider Trading Scandal

US regulators and lawmakers are intensifying scrutiny of prediction markets following allegations of insider trading and illegal gambling. The crackdown intensified after the arrest of Gannon Ken Van Dyke, a US Army special operations soldier who allegedly used classified information to win over $400,000 on Polymarket by betting on the capture of former Venezuelan leader Nicolas Maduro. While the Commodity Futures Trading Commission maintains federal oversight, New York Attorney General Letitia James has sued platforms like Coinbase and Gemini for operating illegal gambling businesses, and Senator Adam Schiff has pushed for bans on betting tied to wars or deaths.

Despite legal tensions, the industry is transitioning from episodic betting to a continuous financial sector. A joint report from Bitget Wallet and Polymarket noted a behavioral shift toward frequent, smaller retail trades. Polymarket's monthly volume surged from $1.2 billion in 2025 to over $20 billion in early 2026, with total industry volume projected to reach $1 trillion by 2030. To gain legitimacy, platforms like Kalshi and Polymarket established partnerships with major news organizations such as CNBC, CNN, and Fox News.

Industry responses vary by regulatory status. Kalshi, a US-regulated exchange, supports increased policing of insider trading. Polymarket operates largely offshore via cryptocurrency, though CEO Shayne Coplan stated the company cooperates with authorities to flag rogue bettors. Meanwhile, President Donald Trump has expressed conceptual dislike and dissatisfaction with the rise of prediction markets.