Federal prosecutors open insider trading cases on military event bets

The Wall Street Journal reported that federal prosecutors in Manhattan and Washington are preparing a new set of insider trading cases targeting prediction market contracts — specifically military-event contracts and corporate earnings bets. The two Polymarket criminal prosecutions already on the docket were a starting point, not a ceiling.

That distinction matters more than it might appear. Military-event contracts occupy a category that earnings bets do not. Someone trading ahead of a quarterly report is working with information that, however improperly obtained, originates in a commercial system — filings, analysts, IR departments. Someone trading ahead of a military event may be working with information that originates inside a government classification structure. Those are not the same enforcement problem. The legal theory is harder, the sourcing is more sensitive, and the evidentiary challenges in court would be of a different order entirely.

I have watched prosecutors build complex financial cases before. The ones that stall are usually not stalled because the underlying conduct is ambiguous — they stall because the government cannot put the evidence in front of a jury without compromising something it values more than the conviction. Military-event markets may be exactly that trap. The case looks clean from the outside and becomes structurally difficult once the classified thread is pulled.

The earnings-bet cases are a different problem and probably a faster one. The enforcement theory there is closer to conventional securities fraud doctrine, even if the instrument is a prediction contract rather than an equity. Prosecutors in Manhattan have that playbook. The question is whether the CFTC's jurisdictional claim over prediction market contracts holds well enough to anchor the criminal referral — and after the Ninth Circuit's ruling against Kalshi on state jurisdiction, the answer to that question is less settled than it was six months ago.

Here is where I will say something the reporting has not quite assembled: the insider trading expansion and the jurisdictional crisis are not separate stories running in parallel. They are in tension with each other. Federal prosecutors are building cases premised on federal authority over these contracts at the same moment that federal courts are telling states they retain meaningful oversight. If a circuit court rules that prediction market contracts are not purely federal instruments, the criminal theory underneath these new cases wobbles. Prosecutors understand this. The timing of the announcement — before that question is fully resolved — suggests they want to establish enforcement facts on the ground before the legal framework shifts under them.

The market exists on this. I think it underweights how significantly the military-event cases will slow relative to the earnings cases, and how much the jurisdictional uncertainty will complicate even the cleaner criminal theories. Enforcement announcements in novel markets tend to move faster than enforcement outcomes. The gap between those two things is where the real risk lives.