Shortly after a member of the U.S. Special Forces was criminally charged this week with using insider knowledge about the capture of Nicolás Maduro of Venezuela to win a series of lucrative bets, the platform on which he gambled, Polymarket, released an approving statement.
“Insider trading has no place on Polymarket,” it said. “Today’s arrest is proof the system works.”
The statement reflects a growing trend among gambling companies, including prediction markets like Polymarket and Kalshi and sports betting platforms like DraftKings and FanDuel. Recent insider trading cases brought in New York have given them an opportunity to argue that illegal behavior won’t be tolerated on their platforms and that the system is working.
DraftKings released a similarly laudatory comment after N.B.A. professionals were charged and accused of similar conduct last fall, saying that the current arrangement allowed law enforcement authorities to “hold accountable anyone engaged in illegal behavior.”
Critics counter that splashy indictments are not a solution to the more widespread problem of insider trading in gambling markets. While prediction markets and sports books are governed by separate regulations, gambling companies across the spectrum have gestured toward indictments to suggest that anything stricter is unnecessary.
“As prediction markets and sports gambling companies like to frame it, they can’t lose,” said Danny Funt, the author of the recent book “Everybody Loses: The Tumultuous Rise of American Sports Gambling.” “When people get caught participating in insider trading, they say the system is working. When time passes without that kind of fraud coming to light, they say this proves concerns about insider trading were overblown.”
DraftKings did not immediately respond to a request for comment. Polymarket pointed to a comment made on Friday by its chief executive, Shayne Coplan, saying that the company would “work proactively with all relevant authorities on any suspicious activity on our marketplace.”
The special forces soldier, Master Sgt. Gannon Ken Van Dyke, 38, was accused of betting on events related to Mr. Maduro and Venezuela 13 times in all, including “bets on the timing and outcome” of the operation to remove Mr. Maduro, according to the indictment.
He was charged with wire fraud, commodities fraud and the unlawful use of confidential government information for personal gain, among other counts.
On Friday, he appeared before a U.S. magistrate judge in North Carolina, who released him on a $250,000 unsecured bond. He has been ordered to appear in federal court for arraignment on Tuesday in New York, where the five-count indictment was filed.
During the appearance, Sergeant Van Dyke wore brown cargo pants and a light green polo shirt that revealed a sleeve of tattoos on his right arm. He showed little emotion, answering routine questions from the judge in a tone barely above a whisper.
Joseph Ross II, a lawyer for the sergeant, declined to comment.
Indictments like that of Sergeant Van Dyke could help relieve pressure on prediction markets in particular, which have faced scrutiny in recent months. Politicians from both sides of the aisle are pushing for stricter regulations, prompted in part by a spate of successful bets related to President Trump’s war on Iran.
The charges “show that prosecutors can intercept this sort of activity,” said Joshua Mitts, a law professor at Columbia University who has written about prediction markets. But he added that it benefited the companies to effectively say that “there are some bad apples but they’re taken care of, so you can use our platforms with confidence.”
Their behavior may not be as isolated as the companies are suggesting, he said, citing a paper that he and Moran Ofir, a law professor at the University of Haifa, posted last month, indicating that insider betting was widespread on Polymarket.
It showed that over 200,000 suspicious bets had been made, bringing in more than $143 million in what its authors characterized as “anomalous profit.”
Polymarket did not respond to a request for comment on the paper.
Different regulatory bodies govern prediction markets like Polymarket and Kalshi and sports books like DraftKings and FanDuel. On prediction markets, bettors are technically trading futures contracts; for that reason, the markets are regulated by the Commodity Futures Trading Commission.
There may be an advantage for the prediction markets in being regulated by a single federal agency. For now, they do not have to adhere to the kind of piecemeal regulation that is imposed by states on the sports books, though the issue is being actively litigated and is likely to reach the Supreme Court. Their champions argue that they improve the public’s understanding of the world thanks to the power of information aggregation — in layman’s terms, the wisdom of crowds.
Prediction markets were initially embraced by a subset of gamblers who wanted to bet on the outcome of presidential elections. Now, these platforms rake in billions from investors and have entered into partnerships with sports leagues and media companies.
Initially, some prediction market executives applauded the appearance of inside information driving activity on their platforms. Mr. Coplan, the chief executive of Polymarket, said in November that providing incentives for insiders to gamble with their knowledge increased his platform’s value as a prediction tool.
Asked about how to counter insider trading, Mr. Coplan appeared instead to endorse it.
“What’s cool about Polymarket is that it creates this financial incentive for people” with insider information to divulge that information to the market, he said.
More recently, Mr. Coplan has emphasized the way that his company is cooperating with law enforcement to combat insider trading, including in Sergeant Van Dyke’s case.
“We work proactively with all relevant authorities on any suspicious activity on our marketplace,” he said in his Friday statement.
Alex Nowrasteh, a senior vice president for policy at the Cato Institute, said that he agreed with companies that an indictment like that of Sergeant Van Dyke was evidence that the system was working appropriately and rendered moot arguments for stricter regulation.
At the same time, he said, the policing of insider trading made “prediction markets less useful as a source for social good.”
“We want people with insider information to make these bets,” he said, adding that the purpose of prediction markets was for the public to better understand the world. He said fears about threats to national security were overblown given the lack of specificity of the bets that were available to be made.
In several of the cases in which bettors have been charged with improperly using insider information, the companies themselves have been framed as the victims.
In Brooklyn, federal prosecutors have homed in on illegal sports gambling and insider trading involving Major League Baseball and the N.B.A. In both cases, professional athletes fed inside information to gamblers, who then placed bets on the platforms and profited, prosecutors say.
The targets of the scheme involving N.B.A. games, prosecutors say, were in fact the betting platforms, who were not accused of wrongdoing.
“The sports books themselves are victims in this case,” Joseph Nocella Jr., the U.S. attorney for the Eastern District of New York, said in October, adding that they “did not perpetrate anything unlawful.”
On Thursday, Sergeant Van Dyke was sued by the C.F.T.C. The commission asked a judge to order that the soldier pay full restitution to Polymarket, which it characterized as the victim of his fraud.
Jonah E. Bromwich covers criminal justice in the New York region for The Times. He is focused on political influence and its effect on the rule of law in the area’s federal and state courts.
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