Prediction markets are facing scrutiny over potential insider trading after reports revealed suspicious betting patterns ahead of major tech announcements. Multiple Polymarket accounts reportedly profited from well-timed wagers before product releases by OpenAI and Alphabet, raising questions about whether insiders are exploiting these platforms.
In the week preceding OpenAI's December 11 GPT-5.2 launch, several Polymarket accounts bet the company would release a new large language model by December 13. Four accounts collectively gained over $13,000 after the announcement. Separately, one account reportedly made more than $1 million in a single day by accurately predicting Alphabet's 2025 search data, fueling suspicions these accounts might be operated by company insiders.
This phenomenon is driving policy changes across corporate America. KPMG partner Conway Dodge noted discussions about including prediction markets in insider trading policies have at least doubled in six months. Robinhood updated its policies over a year ago to cover prediction markets, while Coinbase recently expanded rules to prohibit executives and employees from participating. Both OpenAI and Anthropic confirmed their policies explicitly forbid employees from using confidential information for personal gain, including prediction market betting.
The regulatory urgency intensifies as prediction markets grow exponentially. According to crypto data provider Artemis Analytics, Kalshi's trading volume surged fivefold in six months, reaching $183 million in daily average volume recently. Polymarket's daily volume jumped over six times to $197 million.
Suspicious Trading Patterns Draw Attention
Certain accounts demonstrated uncanny foresight, repeatedly placing large, accurate bets before corporate announcements. Trading records show four accounts betting on OpenAI's new model entered positions a week before the GPT-5.2 release, promptly cashing out after the launch.
The Alphabet-related bet sparked greater controversy, with one account making over $1 million from precise predictions about the company's 2025 search data. Internet commentators widely speculated this could involve Alphabet insiders, though the company declined to comment on its prediction market policies.
As AI dominates public discourse, prediction platforms increasingly offer tech-related betting options too niche for traditional gambling sites. Kalshi users can wager as little as 48 cents on whether designer Jony Ive is developing clip-on devices for OpenAI, or 23 cents on head-mounted displays.
Regulatory Gray Area
Prediction markets operate in a legal blind spot. While U.S. securities laws prohibit trading on material nonpublic information, the SEC doesn't regulate prediction market contracts as they're not classified as securities.
Legal experts suggest jurisdiction may fall to the CFTC or Department of Justice. Regardless, profiting from confidential information likely violates employees' legal duties to employers. Milbank LLP attorney George Canellos compared it to "embezzlement-type fraud" for secretly using privileged information.
Former SEC official Dodge believes this represents "the next issue financial institutions and other clients need to start considering." Several companies including Kalshi and Coinbase recently formed an industry group advocating federal rather than state-level regulation, with initial efforts focused on national insider trading standards.
Industry Leaders' Contradictory Stances
Complicating matters, some executives suggest employees should be allowed to bet on their companies' activities. Coinbase CEO Brian Armstrong recently called the question "not clear-cut," arguing that allowing knowledgeable insiders to participate could improve market accuracy while maintaining integrity.
Some companies like Alphabet and Anthropic operate internal prediction markets where employees bet with virtual currency on project timelines. Dan Schwarz, former CTO of prediction site Metaculus, explained these closed systems aim to surface insider knowledge rather than prevent its use.
Prediction Market Boom
Regulatory attention coincides with explosive platform growth. After users flocked to bet on the 2024 U.S. election, both Kalshi (CFTC-regulated) and Polymarket saw dramatic activity increases. Their flexible contracts—letting users bet on "any disagreement" for under $1—have proven wildly popular.
Polymarket recently received CFTC approval to serve U.S. users after a three-year ban. Investors are backing these companies at increasingly high valuations, with Robinhood already operating its own prediction market and Coinbase planning to launch one next week.
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