A Google engineer and member of special forces have been arrested for placing illegal bets on prediction markets. And these are just examples of the insider trading that may shape more than the country’s finances.

Guests

Kate Knibbs, senior writer at WIRED.

David Szakonyi, co-founder of the Anti-Corruption Data Collective. Associate professor of political science at George Washington University.

Also Featured

Harry Crane, professor of statistics at Rutgers University.

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Transcript of Full Broadcast

The version of our broadcast available at the top of this page and via podcast apps is a condensed version of the full show. You can listen to the full, unedited broadcast here:

Part I

Part I

MEGHNA CHAKRABARTI: Emanuel Fabian knew something was going terribly wrong by Sunday, March 15th, because that’s when the death threats started rolling in. “You’re gonna make us lose $900,000, and we’ll invest even more than that to finish you.” He told CBS’s 60 Minutes that the threats weren’t only against his life. One message made it clear that Fabian’s family wasn’t off-limits.

He also wrote details about my siblings as well. He said, “I know how often you visit your family.” But why? His life had been pretty normal just five days earlier. Fabian was a journalist in Israel, covering his daily beat, going home to his family. So what had changed? Nothing really, except for one thing.

On March 10th, Fabian started covering a story about a missile attack. It turns out people were making bets about those attacks, and that’s what put Emanuel Fabian and his family in the crosshairs. People were threatening to kill him simply because they wanted to win.

This is On Point. I’m Meghna Chakrabarti. On Tuesday, March 10th, an Iranian ballistic missile crashed into the hills outside of Beit Shemesh, Israel. It’s a city near Jerusalem. Videos showed an explosion in a wooded area outside the city. Times of Israel reporter Emanuel Fabian wrote about the attack for the paper’s live blog.

He confirmed via rescue workers that no one was hurt, and he posted a video of the explosion. But for what is likely the first time ever in his career, Fabian later discovered that people were making bets against the likelihood of Iranian missiles landing in Israel. They were making those bets on a prediction market called Polymarket, a place where just about anyone can make a bet on almost anything, including matters of war, life, and death.

Someone had made a bet against an Iranian missile landing in Israel on Tuesday, March 10th. Fabian’s reporting meant that person would lose their money. As he told NPR, later on the day of the explosion, Fabian received an email. The sender asked him to change his reporting. It was somebody asking me to update the story that instead of a missile impacting the area, they wanted me to write that it was a fragment, an interceptor fragment, and not a full missile.

The next day, Wednesday, March 11th, another email from another sender, again asking Fabian to change his story. The sender wrote that doing so, quote, “Would be doing me and many others a great favor,” end quote. Fabian received even more messages, and he was able to link some of them to accounts on Polymarket, specifically accounts betting on when missile strikes would land in Israel.

And even though Fabian had no financial interest whatsoever in the missile strikes himself, the emailers began accusing him of market manipulation. And by Sunday, March 15th, it was those death threats. Hours after the first death threat came in, other messages resorted to even different tactics. If you abide by my instructions and change it, then you can end with money in your pocket and this will all be over.

Fabian reported the threats to local police. He also contacted Polymarket directly, and the company publicly condemned the threats made against him. They said in a statement to The Times of Israel that, quote, “This behavior violates our terms of service and has no place on our platform or anywhere else.”

End quote. Now, Fabian was of course rattled by the death threats, but he told NPR he’s worried about more than just his life and his family’s. Billions of dollars are being gambled on prediction markets now. How far will people go to guarantee that they win?

FABIAN: I think it’s very problematic that we could be in this new age where journalists could be pressured to change their reporting if they’re promised winnings, and that’s what’s so worrying, that people could be using their information to place bets ahead of time, and then having real world consequences afterwards.

CHAKRABARTI: Real world consequences like maybe even business decisions, or elections, or even foreign policy. And the pressure does not only have to come from the outside. A growing, and maybe even bigger concern now, is market manipulation from the inside. What we’re talking about here is insider trading on prediction markets.

Now, I know that might not make sense because prediction markets don’t deal directly in securities trading. They are betting platforms, so they aren’t subject to the same regulations as the stock market, and yet people are using knowledge they have about their own organizations, small and big, like U.S. military big, to make bets on prediction markets.

Kate Knibbs covers this. She’s a senior writer at Wired, where she talks about prediction markets, covers the future of media and AI as well, and she joins us from Chicago. Kate, welcome to On Point.

KATE KNIBBS: Meghna, thank you so much for having me.

CHAKRABARTI: Tell me more what you, about what you think about the Emanuel Fabian story, especially through your lens, as a journalist as well.

Do you think we’re going to be seeing more of, pressure being put on journalists to change reporting to benefit bettors on prediction markets?

KNIBBS: I absolutely do not think that this was an isolated incident. I think about it a lot because I’m a journalist, and I’m waiting until I get a threat like this.

But I’ve been covering prediction market space and online betting and since sports gambling was legalized in the U.S., there’s been a huge increase in athletes being threatened by sports bettors who are unhappy with how their play affected the finances of the sports bettors.

And I think what we’re seeing here with journalists now beginning to be threatened is the natural consequence of the expansion of gambling from something that people do on sports to now with prediction markets, something people do on everything. So most of the major prediction markets, including Polymarket, they determine the outcome of a platform, like the contracts that they offer.

They’ll say, “This is going to resolve based on reporting from credible news outlets.” So they’re pointing to the journalists and saying, they’re going to decide what’s true or not. And so participants will be very aware that the outcome of these contracts will rely on how stories are reported, and specifically, it can come down to how individual journalists word their stories.

And so that really leaves journalists vulnerable to threats from people that are pissed off that they worded something incorrectly.

CHAKRABARTI: Okay. That’s so interesting. I can see why that really puts a lot of pressure from people who are willing to exert that pressure. We should say that it’s obviously illegal to threaten someone’s life based on their work.

But I imagine that the temptation to do that grows even larger when a person is engaging in a form of insider trading or using insider knowledge when placing bets on prediction markets. So that’s really what we want to focus on today, and I was wondering if we could go to another example, because this one’s quite eye-popping, I have to say, and it has to do with a master sergeant in the United States military, Gannon Ken Van Dyke.

He was indicted back in April, and he’s a Special Forces soldier in the United States Army. Can you tell us what he was indicted over?

KNIBBS: Yes, this case is completely insane. And also, I’m a little surprised it’s the only one at this point because this is definitely something that is also not an isolated incident.

So there’s this Special Forces soldier. He gets arrested by the FBI. He is currently charged with using classified information about the capture of former Venezuelan leader Nicolás Maduro, using that information to make allegedly more than $400,000 on Polymarket. So the criminal complaint goes into detail about what the authorities believe this Special Forces soldier did.

They think he was, so we know he was fully involved in what was called Operation Absolute Resolve, the operation to remove Maduro. So he had all of this very sensitive insider information about classified military operations, and the government alleges that he used that information, had this Polymarket account, logs on, and just places a bunch of what looked to be, at the time, total long shot bets about what was going to happen with Maduro.

CHAKRABARTI: Yeah, can I just jump in here, Kate, because I’m looking at the indictment right now. And again, we should emphasize this is an indictment. There hasn’t been a trial yet. He pleaded not guilty, interestingly, in the same courtroom that Nicolás Maduro had appeared in not long before that in New York.

But I’m reading the indictment here, and it says between the 27th through January 2nd, Van Dyke is alleged to have placed bets in that period. Some of which were placed just hours before American soldiers entered Venezuelan airspace for the predawn operation to oust and arrest Maduro.

And then President Trump actually made the operation public that day, which is when Van Dyke allegedly made his $400,000 in winnings.

KNIBBS: Yes. We are in a situation here where there are people operating on very elite levels in the military who are allegedly, as you mentioned, because he did plead not guilty, preparing for super sensitive special ops operations, and simultaneously surreptitiously logging onto Polymarket and attempting to profit off of those operations.

And so then, yeah, so you know, the government has charged him criminally and civilly. We will see how it all unfolds. But this is the first time that anyone has been arrested for doing this in the United States, and I think will be the first of many, but we’ll have to see.

CHAKRABARTI: It’s interesting, because U.S. Attorney Jay Clayton for the Southern District of New York said in a press release, said, quote:

“Prediction markets are not a haven for using misappropriated, confidential, or classified information for personal gain.

“The defendant allegedly violated the trust placed in him by the United States government.”

Part II

CHAKRABARTI: I’d like to bring in David Szakonyi. He’s co-founder of the Anti-Corruption Data Collective and associate professor of political science at George Washington University. Professor Szakonyi, welcome to On Point.

DAVID SZAKONYI: Hi. Great to be here.

CHAKRABARTI: I would like to stick with the case of Master Sergeant Gannon Ken Van Dyke for a moment, again, the Special Forces soldier who was recently indicted, because here’s a little bit more information on what the Justice Department alleges. So the Justice Department says that between December 8th and January 6th, Van Dyke was involved in the planning and execution of the U.S. military’s ousting of Nicolás Maduro.

On or about December 26th, he creates this Polymarket account and starts placing bets on what’s called, binary bets are the yes/no positions. And he makes bets on will U.S. forces be in Venezuela by January 31st, 2026? Will the U.S. invade Venezuela by January 31st? Will President Trump invoke war powers against Venezuela by January 31st?

And he initially betted, according to the Justice Department, some $33,000, and as Kate said to us a little bit earlier, walked away with $409,881. I just want your take on, these were just yes/nos. Do you think that they could potentially have had an impact on the operation itself?

SZAKONYI: I think absolutely, because at the end of the day, this young man was allegedly trading on insider classified information, and the rest of the world could see this because one of the perhaps features of these prediction markets is that everything is on the internet. Everything’s on the blockchain. You can see these bets happening in real time.

So if we as analysts and journalists and scholars can observe them, so can potentially America’s adversaries, who can monitor markets that are related to American foreign policy. And if they pick up anomalies or outliers, these long shot bets, they could have access to the same classified information that this account is trading on and perhaps change their behavior or respond in real time to the information that they’re getting from places like Polymarket.

So if we as analysts and journalists and scholars can observe them, so can potentially America’s adversaries. David SZAKONYi

CHAKRABARTI: Okay, I’m gonna ask you to hold that thought for a minute, because I wanna come back to it. But I understand that you believe there’s reason to be quite concerned specifically about bets related to U.S. military actions?

SZAKONYI: Absolutely. So we’re an anti-corruption non-governmental organization, and we saw the same cases that everyone did around the world, and we were curious about how common they are.

Are there any patterns, or how frequent are people potentially betting on insider information? So like I said, everything’s on the blockchain. We gathered all the data over the last three and a half years, hundreds of thousands of markets and millions of bets. What we did is we classified things like politics versus sports versus culture.

You can basically bet on anything on these platforms. And then we wanted to see whether or not these long shot bets, lots of money bet on long odds, low odds probabilities. In Polymarket terms, that means, say, 20% or 30% probability. And what we found was this incredible anomaly, which is that for military and politics markets, long shot bets succeeded over half the time, when really there should’ve been a maximum of, say, a third.

And for long shot bets on policy or on culture or sports, they only succeeded around 14 or 16% of the time. So there’s this discrepancy that we think where there’s something funny or suspicious going on, where these really advantageous, profitable bets that shouldn’t pay off are more likely to do so specifically when they relate to military and defense.

CHAKRABARTI: I need you to tell me more, because you’re saying that they’re beating the odds quite significantly, right? If these long shot bets, which are supposed to have much, much lower odds, are, you’re saying that they’re winning sometimes as 50% of the time?

SZAKONYI: More than 50%. A hair over.

CHAKRABARTI: More than 50%. Okay. Yeah, go ahead. No, go ahead.

SZAKONYI: Yeah. And it’s incredible, because there’s a lot of money at stake. They’re betting thousands of dollars, and they shouldn’t win that often based on the probabilities that they’re getting in the market.

CHAKRABARTI: Do you know what kinds of bets these are? Because here’s the thing about the prediction markets. And Kate, actually, let me turn this to you. You can pretty much make bets on anything, right?

KNIBBS: On Polymarket, it’s very wide open because the version of Polymarket we’re talking about is considered a U.S. company, but it’s actually offshore.

It’s crypto-based, so they don’t always abide by the rules that the U.S. government has over what sort of commodities futures you can offer. So they have war markets, as we’re discussing. And people who participate can actually suggest different markets for them to create. So it’s like you could DIY your own market if you’re influential enough.

So yes, basically almost anything you could think of.

CHAKRABARTI: Okay. So you could ostensibly create a bet that says let’s take current events right now, that you could create a bet that says, I don’t even know if this is actually on any prediction market, that by this coming Friday President Trump or the United States won’t sign, will or will not sign the peace deal, supposed peace deal with Iran.

You could make a bet on that. You could actually create that.

KNIBBS: You could create it, but I’m pretty sure it probably exists already. You’ll have to check.

CHAKRABARTI: (LAUGHS) Okay. Okay. So David, now with that in mind, let me turn back to you. I don’t know if you have any examples of the kinds of bets that you see that look very anomalous in the military defense world and political markets.

Are there any that stand out to you?

SZAKONYI: I think a good illustrative example was last summer when there was a lot of uncertainty about when military strikes would happen in Iran. And like we’ve discussed, Polymarket, there’s basically every market possible. You can bet whether or not they’re gonna happen on a Tuesday, on a Wednesday, on a Thursday, on a Friday, on a Saturday.

They’re that specific. And what’s pretty insane when you look at the data is that there’s this level of insider kind of prediction or a foreseeing of the future, where concentration of long shot bets, lots of money at low odds on exactly the Friday and Saturday markets, where ultimately the strike on Iran would happen, and not on Tuesday, Wednesday, Thursday, when of course the U.S. government was still deliberating and potentially planning for a later in the week strike.

So it’s that detailed, it’s that specific, and there’s so much money at stake, and it’s happening sometimes minutes or hours before the actual event occurs, that there could be traders around the world that have access to sophisticated satellite data or that are really good at predicting what the American military is going to do.

But more likely it’s somebody on the inside who’s involved with the deliberations or the planning who, like you said, is taking out their phone and making bets on the side.

CHAKRABARTI: Okay, so let’s talk about this a little bit more. A lot more, David and Kate. Minutes sometimes before the action actually either happens or doesn’t.

Are you talking about, I think was it early, it was earlier this year that somebody was placing actually quite large bets on specific things regarding the United States’ behavior with Iran. Is that what you’re talking about?

SZAKONYI: Absolutely. I mean, the events that we’ve focused on really involve military strikes against Iran, the kidnapping in Venezuela, the things where there’s classified information that’s within government servers, within government conversations, but is leaking out onto these platforms because people are realizing they can make money quickly and potentially not get caught.

CHAKRABARTI: Okay. So Kate, by the way, of course, you are 100% right.

We just looked up what’s happening on Polymarket regarding the U.S.-Iran permanent peace deal. And right now there are some $343 million in bets on that question.

KNIBBS: Oh my goodness.

CHAKRABARTI: Or this one version of, versions of that question at this moment. Wow. Okay. Now Kate, can you talk a little bit about potentially how far this can go.

The allegations against the U.S. Special Forces officer are one thing, but you’ve spoken with people on Capitol Hill who have concerns that the possibility of betting made on with insider knowledge in the government goes perhaps even deeper.

KNIBBS: Oh, yes. Yes. I talked to Senator Chris Murphy, who is coming out swinging, saying he believes that this goes, there are people in the White House potentially profiting off of this kind of market and using information that they are getting in the Situation Room to place trades or, I don’t know, maybe tell their spouses.

It’s a little unclear, but that is what he believes. He’s definitely not alone in that belief. There’s overwhelming and often honestly bipartisan concern about insider trading from government officials on these platforms. Now, I will say the White House has, I’ve asked them about this multiple times, as you can imagine, and they always say that their employees are prohibited from betting.

Which is an interesting choice of words, because there’s also this parallel huge fight going on over whether this is gambling or whether this is commodities trading, and the White House’s official stance is that it’s commodities trading. But anyways, they say gambling is not allowed. Have not clarified to me whether they consider this gambling or trading, but they’re denying it.

No one has been arrested. I am certainly very interested to see what the next arrests will be. The Commodity Futures Trading Commission, which is the federal agency overseeing these markets has stated that insider trading is illegal, that they’re planning to catch people and prosecute people who are doing this.

But so far there’s one person, and it’s a soldier. He’s not, he’s clearly an important person, but he’s not in the Situation Room.

CHAKRABARTI: Okay. Let’s back up here. Back up to what you said a little earlier. That Senator Murphy, Democrat of Connecticut, says that he and other people believe that folks who have access to the Situation Room, that some of them might be actively using that knowledge and making bets on prediction markets. Okay. That’s quite an allegation. Did he present you with any kind of evidence?

SZAKONYI: It seemed to be more of a vibes-based allegation. But you know what?

Anyone listening to this who has any evidence, please get in touch with me. I would obviously love to pursue that.

CHAKRABARTI: Yeah. She’s Kate Knibbs. And she’s at Wired Magazine, okay, folks? Okay, David, can I turn back to you? Because this is very important. I don’t wanna dwell too much in speculation, so let’s go to the question of, okay, in the cases that you’ve already identified, with all the information that screened from the blockchain, et cetera, where people are beating the odds on these military or defense-based bets on prediction markets, first of all, like, how can we glean, or what evidence would you look for to know whether or not it is insider trading or just folks getting wildly lucky?

SZAKONYI: It’s a great question. And as people outside the platforms that aren’t working in law enforcement, it’s basically impossible for us to identify or, you know, find the person behind these accounts making the bets. The money slips back into the crypto ecosystem. You can see how it moves through different coins and different wallets and sometimes gets laundered on cryptocurrency.

But at some point, our powers of investigation are limited because we can’t subpoena an exchange or any of these other institutions that live and make cryptocurrency happen to figure out who is the person who initially deposited the money that was made, that was used to make one of these long shot bets.

That said, and what I think what happened with the Van Dyke case is that the government used that power. They used their requests and subpoenas to follow the money all the way to the natural person and then made the arrest. And we think that there’s a couple dozen of such cases that we can see in the data, and that it would be actually quite easy for investigators anywhere around the world to unlock the identity of the people making the bets.

But without that power of subpoena, there’s very little that the rest of us can do besides kind of trace the money and illustrate that this is happening and it’s a big problem and it’s potentially solvable.

CHAKRABARTI: Yeah, I’m glad you went back to the Van Dyke case, because I was just gonna ask about that.

And once again, I’m looking at the indictment, and you’re right. They must have had some kind of subpoena power to determine, or at least have enough evidence to allege that Van Dyke himself created that Polymarket account. And then it says later on, the Justice Department says that following in his successful quote-unquote, “trades,” Van Dyke allegedly sent most of his proceeds to a foreign cryptocurrency vault before depositing them online in a newly created brokerage account.

So that, if all that is true and proven in a court, that would comprise the chain of evidence, David.

SZAKONYI: Absolutely. And the government is doing this every day when it investigates scams and all the other malicious activity that’s happening on cryptocurrency. We’ve got companies around the world that have the advanced technology to trace money on crypto.

The question is whether they’re gonna put it to use to solve these questions on prediction markets that are related to insider trading. And like you said, we only have one example, but we know it’s happening more often than not. And I would hope that our government would, will do more. And in fact, there are governments around the world that are trying to do more.

I hope we can take the lead in saying that enough is enough and we’re going to make an example over a large number of cases and potentially deter people from doing this in the future.

CHAKRABARTI: Okay. Kate, I’d love to go back to what the White House told you, because you’re right, it is an interesting choice of words that they’re saying no one is, in the White House is, quote-unquote, “betting.”

But so did they say that people are engaging in commodity trading, or did, or is that the implication? Or clarify.

KNIBBS: They didn’t come out and say that people were engaging in prediction market trades. I think you can read between the lines a little bit with the fact that the Trump family is very actively involved in the prediction market industry.

Donald Trump Jr. is an advisor to Kalshi and an investor in Polymarket. They also are planning to launch their own prediction market through Truth Social, their platform. So like perhaps, but no one has straight up come out and said to me, “Oh yeah, we’re trading on Polymarket, just not using classified information.”

That is an open question. What they were saying was that no one is allowed to gamble.

CHAKRABARTI: But the White House told you, because you said a little earlier, and I just wanna be sure that I’m hearing you appropriately, that they consider prediction markets like commodities trading?

KNIBBS: That is the position of the federal government right now.

CHAKRABRATI: Of the federal government right now?

KNIBBS: Yes.

CHAKRABARTI: Okay. That’s interesting because commodities trading is regulated.

KNIBBS: Yes, it is. And this is the thing that is really confusing about what’s happening in the prediction market industry right now.

Polymarket, which is where a lot of these really suspicious trades are taking place, the Polymarket platform that we’re talking about is actually blocked in the United States. Americans are not allowed to use it. Americans are using it by signing up for virtual private networks and hiding their locations.

But they’re not technically allowed to use it. It is not regulated by the federal government. It’s offshore. Kalshi is the other leading prediction market company. That one is federally regulated. That one does not use cryptocurrency. So if you wanna sign up for Kalshi, you have to give them your name and like information about you.

So that one’s a little harder to do really sketchy insider trading on because they have know your customer requirements.

Part III

CHAKRABARTI Now, Kate had mentioned a little bit earlier the CFTC, the commodities trading regulatory body in the United States. Let’s hear from a voice that’s associated with the CFTC.

This is Harry Crane. He is a professor of statistics at Rutgers University and also a member of the Commodity Futures Trading Commission’s Innovation Advisory Committee. He also has a Substack called Prediction Markets Newsletter, and back in March, he published an article headlined Insider Trading in Prediction Markets: Good or Bad?

Professor Crane is not as immediately concerned about insider trading in prediction markets, and he says regulation and policy should determine what’s allowed and what’s restricted. And right now, he says there just isn’t a lot of regulation to put restrictions in place.

HARRY CRANE: But I don’t think it should just be assumed that because it feels wrong, it is wrong in some technical sense.

There does have to be a formal framework, or else we don’t know what we’re doing.

CHAKRABARTI: So we asked Professor Crane specifically about the case of U.S. Army Special Forces Master Sergeant Gannon Ken Van Dyke, the case of alleged insider trading that Kate, David, and I had been talking about throughout this hour.

Now, Professor Crane says it’s important to acknowledge that Van Dyke has been charged with a number of offenses, including the unlawful use of confidential government information for personal gain. But Professor Crane says the charges aren’t the ones typically associated with insider trading because he says they don’t legally apply in this case.

CRANE: I think that there’s a tendency to want to just bring over wholesale, whatever definitions there are, whatever concepts there are from the securities world and insider trading in the stock market, and to bring that over into the event contract and prediction markets world.

CHAKRABARTI: Professor Crane also says concern over insider trading doesn’t acknowledge the nuance of how prediction markets work, about how knowledge flows, about certain events or actions.

And he says there’s a difference between being a decision-maker about certain events and their outcomes and simply being very resourceful in gathering publicly available knowledge about events.

He says take, for example, bets made on what songs would be played during the Super Bowl’s halftime.

CRANE: If you can sit outside of a Super Bowl and listen on a public street to what the songs are being sung.

That’s public information, right? It’s just that other people aren’t collecting the information. And so that’s what these markets, they incentivize, in some sense, you can think it’s ridiculous, it’s kinda crazy, but it’s also exactly what these things incentivize. People will argue whether that’s what we want our society to be doing, but put that aside, as we sit here today, these are legal markets.

They do exist.

CHAKRABARTI: And Crane says bottom line for him, he thinks it’s absurd to impose tight levels of restrictions on insider trading in prediction markets because even though the current federal government’s position is that prediction markets are commodities markets, Professor Crane says they are not commodities or securities markets.

CRANE: These prediction markets are fundamentally information markets. People trade on information, and if we’re trying to, in some sense, make it illegal to trade if you have information, then what do these markets become? What are we even doing here? It’s essentially, we want to basically extract any kind of privileged information out so that every market is basically like a roulette wheel, where anybody playing that game has exactly the same information, and there’s no way you could have an advantage in the market.

So that’s Professor Harry Crane at Rutgers University, and as I mentioned, he’s also a member of the Commodity Futures Trading Commission Innovation Advisory Committee. Okay, so Professor Professor Szakonyi, let me turn to you here because I wanna go straight at this big, almost philosophical point that Professor Crane makes.

He says they’re not commodities markets because they’re not trading in physical commodities. These are information markets. I’m just wondering, though have we reached the point where we should see information as a commodity or not?

SZAKONYI: I think information can be a commodity, and I think most commodities markets and equities markets are also trading on information as well.

So it’s a strange distinction to say that if I buy a certain stock … I’m not doing research, I’m not making a bet based on what I think’s gonna happen in the market information. So I think that’s a little misleading. I also think that the point was made, yes, I haven’t heard any calls to say we wanna restrict the use of public information when these bets are being made.

I think what we’re most concerned about is when private, sensitive, classified information, the same stuff we regulate when it comes to commodities or equities, when that’s being used to privilege a small group of insiders and the public is unaware of that’s what needs to be regulated.

That’s what needs to be pursued by our government. So I wanna be clear about where the concerns are. They’re not necessarily about the Super Bowl or about sports or about culture, but they’re about private information that no one really has access to, or maybe it’s illegal to have access to or share beyond a certain set of constraints.

CHAKRABARTI: Yeah, and as you said, private and potentially highly sensitive and classified information even. Now, Kate let’s take a step back here because I suppose I should have asked you much earlier in the United States, are prediction markets regulated and at all? And if so, how?

KNIBBS: Yes, they are. And it’s, I think, a big misconception that they’re not because people have been getting away with so much.

They’re regulated. It’s just that the enforcement on the regulations has been lackluster, which is why we’ve only had one arrest. The CFTC that we were discussing, the federal law regulator in charge of this, they prohibit insider trading. The Commodity Exchange Act is the law connected to the CFTC that prohibits insider trading.

So it is illegal. You’re not allowed to do, you’re not allowed to insider trade on commodities markets. And right now, for better or for worse, prediction markets are considered commodities markets in the U.S. So it’s not a Wild West in theory. It’s just that in practice, we’re not seeing the level of arrests that you would expect to see when you’re looking as David was saying, at all of these suspicious trading patterns going on.

CHAKRABARTI: But you’ve spoken with Michael Selig, I believe, the chair of the CFTC, and what did he tell you?

KNIBBS: He will reiterate, if you talk to him, will reiterate it’s illegal. He says that they are aggressively pursuing people who violate insider trading laws and that we should expect more arrests.

It’s really hard to get them to tell you any details on cases that are still unfolding. But that is their stance. Critics of the CFTC will argue, and I think reasonably argue, that so far we have not seen enforcement aggressive enough. But, it’s not like he’s out here saying, “Actually, it’s fine. Go ahead and insider trade.”

CHAKRABARTI: Okay. So I wanted to hit another example here because these examples are both just absurd to think about, but also really important to understand.  And this is outside of defense. This is in elections. And you covered this, Kate, that a U.S. Senate candidate from Virginia, Mark Moran, serious underdog in the Senate race there he got caught doing insider trading on Kalshi on his own campaign?

KNIBBS: Yeah, he did. So yeah, as I was saying before, like Kalshi, you have to give them your name before you participate. So it’s easier to catch people doing things they shouldn’t be doing because they can just look up who’s doing it. And what happened here was Mark placed trades on his own campaign, was caught, had a very sort of avant-garde excuse.

He said he did it on purpose. He said he did it on purpose. He wanted to see what would happen. He’s not sorry, and he’s claiming that it was basically a test of Kalshi’s enforcement powers.

CHAKRABARTI: So says a gentleman whose claim to fame before running for the United States Senate was being a contestant on the reality dating show FBoy Island.

KNIBBS: Yes.

CHAKRABARTI: I can’t believe I just said that on the radio, but I did. But he got caught, to the point of what you were saying earlier, because on Kalshi you actually have to give your real identifying information. But then there’s Polymarket, you said that, which is technically based offshore, that you don’t have to do that.

Okay, so that’s like, again, a little absurd little story within elections, but it gives us a window into the potentially much larger implications, if more serious candidates or staffers on campaigns or what have you start placing bets on elections using knowledge that they have.

You can imagine what if someone’s placing a bet on whether or not the candidate they work for is gonna step out of the race. So David, this all circles me back to the point that you were making much earlier in terms of the why should we care, beyond the just sheer, complete ethical vacuity of using insider knowledge to make bets.

I want you to tell me more about the sort of specific policy, foreign policy elections outcomes or impacts this could have. You were saying that other people in other governments could be watching what’s happening on prediction markets and somehow glean some intelligence about the actions or behaviors of the United States government?

SZAKONYI: I actually think that’s, it’s not longer, no longer a low possibility. I think that’s definitely happening, that other governments are monitoring prediction markets, especially related to American foreign policy. They’re monitoring everything we’re doing and trying to collect as much information about our government and our security apparatus.

And given all the stories about how this is a leaky sieve, yes, I think with almost complete certainty other governments are downloading the data, are getting alerts on suspicious trades, are looking at ones that are very, looking at markets that are very central to their own interests and trying to predict what the U.S. government’s going to do.

That, for them, is very advantageous. Like I said, they could prepare their response. They could put troops or resources or assets in different positions in order to defend, for example, against military strikes that the American government has signaled beforehand through prediction markets that it’s going to execute.

So this has real national security implications when it relates to these matters of defense, and I think that’s why those statutes were being invoked in the Van Dyke cases, because I think the classic government official is gonna see this as a leak of classified information. And that, all the way up, it can be deemed treason depending on how egregious the leak is.

CHAKRABARTI: But couldn’t you make the counterargument, though, that if governments are just looking at the action or what’s happening on a prediction market, that they’re just looking at, to use the phrase again from Professor Crane, this is publicly available information. You can see what bets are being placed on what questions in prediction markets.

Anybody could, That doesn’t necessarily give that particular foreign adversary an edge or could be a potential threat to national security.

SZAKONYI: It depends on whether or not our government wanted to release that information at the time that it did. Once it hits the prediction markets, it’s public for everyone to see.

But if that information’s not being released by a top decision-maker who says, “Now it’s time to announce the date of the next strike,” then they may be operating under the assumption that they have 48 hours more of complete opacity surrounding their moves, but the rest of the world kind of can force, see this coming and respond accordingly.

So you have this discrepancy that private information is potentially being leaked preemptively or early, and that can create advantages for other people if our government is not the one releasing the information. If it’s not coming from the top, that can create a lot, a host of other problems, and I think that’s where the concerns are.

CHAKRABARTI: So Kate have the major players in prediction markets, we’ve mentioned Polymarket and Kalshi, have they decided to be more aggressive in their internal regulating of the bets that are being placed?

KNIBBS: Yes. They’ve both made major pushes to beef up their surveillance programs. Polymarket works with this blockchain analysis company called Chainalysis.

Kalshi has this very intense surveillance program. So they are making efforts. Whether it’s enough or not remains to be seen.

CHAKRABARTI: Okay. David, we have just about a minute left, and one final question for you. We talked about the national security implications, and there’s also just trust. Not just as in the little issue of trust, but the significant issue of trust, right?

Because when we’re talking about people who work for the federal government, they take an oath to protect the United States, to protect the Constitution, to not behave in ways that are in opposition to the best interests of the American people. I’m just wondering what the potential implications are in terms of how much we can trust the behavior of the government, and also, everything links back to when we lose trust, we lose stability.

There could be, I don’t know, domino effects on economic stability, things like that. Am I overreading the potential implications here?

SZAKONYI: No. I’m generally concerned about prediction markets being the latest iteration of a sort of casino-ification of the American economy, where insiders with privileged access or information are able to make a lot of money, and even undermine or take apart institutions such as our system of classification in order to profit from it.

And all of this destroys public trust, not just in our government, but in the kind of ideals of economic equality that I think we still should be striving towards. And I think prediction markets are, follow sports betting and fantasy sports, is just another example of the way that a small group of people that have privileged access can make money at the expense of others and also abuse trust along the way.

This article was originally published on WBUR.org.