Iran prediction market trades spark insider trading concerns

• Key insight: Prediction trades regarding recent events in Iran alerted lawmakers to potential insider trading concerns.
• What's at stake: Financial institutions pursuing prediction market partnerships could face additional regulatory scrutiny.
• Expert quote: "Insider-trading concerns are real and something banks or fintechs should take seriously if they're exploring prediction markets." —Pitchbook analyst Rudy Yang

Hours before U.S. and Israeli missiles landed in Iran, traders on prediction markets placed wagers on when the strikes would occur and when the country's Supreme Leader Ali Khamenei would no longer be in power. 

Those bets are now under scrutiny from lawmakers and regulators as potential instances of insider trading, particularly as prediction markets hold an increasingly significant role in financial markets.

Prediction markets, exchange-traded platforms where traders buy and sell contracts based on the outcome of future events, are a subsector of the trade finance industry that has grown significantly in popularity over the past year. 

Investment firms and fintechs such as Goldman Sachs, Investment Brokers and Robinhood have expressed interest or invested in prediction market products. (Investment Brokers and Robinhood also both applied for bank charters last year.) Global fintech and stablecoin issuer Circle announced last month that it partnered with Polymarket to make its USDC stablecoin the settlement asset for the prediction market.

"With proper protections in place, prediction markets offer something quite valuable," Pitchbook senior analyst Rudy Yang told American Banker. "Real conviction is backed by real stakes, and this dispersed information is aggregated into legitimate signals that update in real time. The potential is already there: Goldman has expressed interest in exploring event contracts, and prediction markets are already the fastest-growing product in Robinhood's history."

However, recently raised suspicions of prediction markets assisting with insider trading on geopolitical events could foster uncertainty, even as traditional financial institutions examine the potential of working with prediction markets.

"Insider-trading concerns are real and something banks or fintechs should take seriously if they're exploring prediction markets," Yang said. "These markets create financial incentives around real-world events, so the risk of people trading on non-public information is naturally higher."

A series of suspicious trades

Over the weekend, multiple trades predicting the events in Iran were conducted on the two largest prediction trading platforms, Kalshi and Polymarket.

According to blockchain analytics company Bubblemaps SA, six newly created Polymarket accounts made around $1.2 million in profit after successfully betting on the U.S. striking Iran by the end of February.

California Rep. Mike Levin said in a post on X that one Polymarket account made $515,000 in a single day by betting on the U.S. striking Iran before the end of February, with the first trade placed 71 minutes before the news became public.

"Prediction markets cannot be a vehicle for profiting off advance knowledge of military action," he said. "We need answers, transparency and oversight."

Connecticut Sen. Chris Murphy said on Saturday that he is working to ban trades like those conducted in the hours before the strikes. "People around Trump are profiting off war and death," he alleged in an X post.

Lawmakers were already expressing concerns over insider trading in prediction markets and the prospect of trading on people's deaths in the days before the war began.

"I'm working on legislation to ban corrupt and destabilizing prediction markets, where insiders who know the outcome (especially in government) can rig the game to favor certain bets," Sen. Murphy said on Feb. 27, the day before the U.S. conducted its initial strikes on Iran. 

A week before the supreme leader's death, a group of senators, including California Sen. Adam Schiff, urged the Commodity Futures Trading Commission, or CFTC, in a joint letter to "prohibit any contract that resolves upon or closely correlates to an individual's death." 

Prediction markets response

Kalshi operates within the U.S. and is therefore subject to the CFTC, which already prohibits contracts that involve terrorism, war or assassination. 

"We don't list markets directly tied to death," Kalshi CEO Tarek Mansour said in a post on X after Khamenei's assassination. "A market on Ali Khamenei out as Supreme Leader was important because leadership changes in Iran have [a] major impact on the world order. … It's always possible for a ruler to step down or transition power without death, even in autocracies."

The platform's page for placing trades on Khamenei, instead of referring to his death, worded the trade as "Ali Khamenei out as Supreme Leader?" Payouts from the trade were paused pending further review from the company as of Wednesday, according to a note posted on the page.

Kalshi previously self-reported two unrelated instances of insider trading last week and took action to remove the offending parties from the platform. One involved a California gubernatorial candidate trading on his own candidacy in May 2025, and the other involved an editor for the Youtuber Mr. Beast trading with advanced knowledge of video content prior to publication in August and September 2025.

Polymarket, although it is also headquartered in the U.S., primarily operates offshore after being banned from operating in the U.S. by the CFTC in January 2022 for failing to obtain proper licensing at the time. 

In November of last year, Polymarket received an amended order of designation from the CFTC to reenter the U.S. market after acquiring CFTC-licensed exchange and clearinghouse QCEX for $112 million in July 2025. The platform is currently offering a waitlist to users for a beta version of its U.S. platform.

On the platform's offshore U.S.-Iran strike prediction contract, Polymarket posted a note on what it referred to as "Middle East Markets."

"The promise of prediction markets is to harness the wisdom of the crowd to create accurate, unbiased forecasts for the most important events to society," the statement said. "After discussing with those directly affected by the attacks, who had dozens of questions, we realized that prediction markets could give them the answers they needed in ways TV news and X could not."

Potential security risks

Insider trading on geopolitical events could also be a security risk for top-secret operations according to Noah Solowiejczyk, partner at the law firm Fenwick and West and a former federal prosecutor for the U.S. Attorney's Office for the Southern District of New York.

"Trading activity in a prediction market by an insider that publicly tips or reveals that an event may be imminent could, in theory, have real world geopolitical implications," he told American Banker, noting that similar concerns arose when Venezuelan President Nicolás Maduro was captured by the U.S. in January. 

In that case, a Polymarket account flagged by watchdogs invested $30,000 in futures contracts relating to Maduro's removal from power and U.S. military presence in Venezuela a few hours before the raid occurred. The account subsequently received over $400,000 in payouts from Polymarket for the accurate predictions.

"A scenario where the target of a raid or some other military action would be in a prediction market that alerts them that something may be imminent, and thus they take action in response to it and it jeopardizes our military and our national security — I'm not sure it's so far-fetched," Solowiejczyk continued.

Legislator/CFTC response

In response to Polymarket's Maduro instance, New York Rep. Ritchie Torres introduced the Public Integrity in Financial Prediction Markets Act of 2026 to the U.S. House of Representatives. The bill seeks to prohibit various categories of government officials possessing nonpublic information from buying, selling or exchanging certain types of policy-related prediction market contracts.

Solowiejczyk said that newly introduced pieces of legislation would stack on top of existing codes barring insider trading for swaps, citing 7 U.S. Code Section 6c of the Commodities Exchange Act, and noted that "prediction market contracts are swaps."

Within the Commodities Exchange Act, it is prohibited for a government employee or agent to trade, or tip someone else to trade, on swaps using information gained from the virtue of their employment. Solowiejczyk qualified that there may be some ambiguity when it comes to the military, and additional legislation could bring further clarity.

A Feb. 25 statement from the CFTC regarding Kalshi's self-reported insider trading cases stated that under the Commodities Exchange Act, "the Commission has full authority to police illegal trading practices occurring on any DCM [designated contract market], including those related to prediction markets."

Yang noted that insider trading is a challenge most financial markets faced early on in their development and is not a unique concern of prediction markets.

"The way to address this is through similar guardrails used in traditional markets: clear rules around privileged information, surveillance for suspicious trading, position limits and audit trails for large traders," he said. "Oversight is beginning to take shape. Recently, the CFTC issued an advisory reaffirming its authority to police insider-style misuse of nonpublic information, fraud and other illegal trading practices on regulated prediction markets."

The CFTC is currently working on creating additional rules and guidelines for prediction markets operating in the U.S., according to Chairman Michael Selig.

"We are coming out with guidance in the very near future, so please stay tuned," Selig said at a plenary session for Milken Institute's 2026 Future of Finance conference on Tuesday. "We're going to be setting very clear standards as to what can be self-certified in our markets and what cannot, and how to evaluate the different products offered in the space."

Selig also said that the agency is planning to release an advanced notice of proposed rulemaking to "set the stage for more fulsome rulemaking" for U.S.-based prediction markets.

CFTC staffing concerns

Solowiejczyk said that, in regard to insider trading concerns on prediction markets, the CFTC is the primary enforcer of existing and upcoming laws, but it will need to assign proper levels of resources to follow through on enforcement actions effectively.

"The CFTC is actively advocating in the courts that they're the proper regulator, so they're going to need the resources and the staffing to appropriately enforce the rules of the market," he said.

According to a CFTC Office of Inspector General report published December of last year, the number of full-time equivalent employees on payroll at the CFTC at the end of 2025 was 556, a 21.5% drop from 708 in 2024.

"The CFTC should consider human capital management as a top priority," Inspector General  Christopher Skinner wrote, "and adopt best practices utilized by other federal agencies to strengthen their own policies and procedures for recruiting, hiring, developing and retaining an effective workforce to ensure the agency has the appropriate talent and skill sets to meet an expanding regulatory landscape."

On Feb. 27, Illinois Sen. Richard Durbin wrote a public letter, co-signed by four other senators, to the CFTC expressing concerns regarding the agency's reduced staffing and enforcement.

The senators claimed in the letter that the CFTC brought 13 enforcement actions in 2025 and obtained "less than $10 million" in relief. The CFTC has not yet officially released its annual enforcement results for 2025. In 2024 the agency filed 58 actions yielding a record-setting $17.1 billion in relief, and in 2023 it filed 96 actions yielding $4.3 billion in relief.

A Barron's report cited by the letter reported that the CFTC's Central Regional Office in Chicago has dropped "from 20 enforcement attorneys to none," and overall Department of Enforcement staffing decreased by "at least 25 percent."

"If accurate, this represents a significant weakening of one of the agency's most important enforcement hubs," the letter stated. "These developments are particularly troubling given the rapid growth of digital asset derivative markets and prediction markets — both of which fall within the CFTC's jurisdiction — and the possibility that Congress may expand the agency's authority over digital asset spot markets."

In response to the Barron's report, Selig said on a Bloomberg Odd Lots podcast episode that the CFTC has "a ton of staff throughout the country," noting that the agency does not have offices in all states and that its two largest offices are in Washington, D.C., and New York City. 

Selig also said that the CFTC is actively hiring, and in response to a question about funding said that the agency has "adequate resources" to expand headcount.

"We're really well-staffed," he said, "but we're continuing to build that out and make sure that we have good people in the building who are competent and able to make sure that we protect our markets."

The CFTC also announced David Miller as its newly appointed director of enforcement on Monday. Miller worked as an assistant U.S. attorney in the Southern District of New York for five years, according to a CFTC announcement, and spent part of that time working alongside CFTC enforcement staff as a member of the Securities and Commodities Fraud Task Force.

In regard to the CFTC bringing enforcement actions against a prediction market when insider trading concerns arise, Solowiejczyk believes that it will happen, but not right away.

"They just need the right test case, and they probably need to do some recruiting to get more enforcement attorneys to make that feasible," he said.