When Betting Markets Become Bounty Systems: Polymarket’s Dangerous New Frontier

Israeli authorities in February indicted an IDF reservist and a civilian for using classified military intelligence to place bets on Polymarket about Israeli operations in Iran. The charges mark the first publicly known arrests tied to insider trading on prediction markets using military secrets, but national security experts warn the case exposes a far broader vulnerability in how these platforms operate.While markets betting on Israeli military strikes or potential United States attacks on Iran have drawn hundreds of millions in wagers, Polymarket’s contracts on President Maduro’s fate have raised particular alarm among counterterrorism officials. Hours before United States forces captured Mr. Maduro in a predawn raid on January 3, a newly created account invested over thirty thousand dollars betting on the Venezuelan leader’s ouster, netting more than four hundred thousand dollars in profit by morning.The account, Burdensome-Mix, had been created less than a week earlier and placed bets only on Mr. Maduro’s removal and potential United States military action against Venezuela. “It clearly suggests that the bettor did have access to inside information,” cofounder and CEO of Better Markets, Dennis Kelleher, tells The New York Sun. “This particular bet has all the hallmarks of a trade based on inside information. It happened very late, right before the very event they were betting on happened; it was a relatively large amount of money, and it happened in a market that is not really regulated and where there is no transparency.”Similar suspiciously accurate bets preceded other major geopolitical events, from Israeli strikes on Iran to the announcement of the Nobel Peace Prize.The Israeli CaseAccording to Israeli authorities, a user identified as ricosuave666 placed multiple bets in June on Israeli military operations in Iran with striking accuracy, wagering tens of thousands of dollars and generating approximately one hundred fifty thousand dollars in profit. Prosecutors allege the IDF reservist accessed classified information during military service and shared it with a civilian to place the bets.“The defense establishment emphasizes that placing such bets, based on secret and classified information, poses a real security risk to IDF operations and to the security of the state,” Israeli authorities said in a statement.The platform prohibits insider trading in its rulebook, but enforcing such rules proves nearly impossible in practice.Unlike traditional insider trading in regulated securities markets, prediction markets operate in a regulatory gray zone. Polymarket allows users to buy and sell shares on potential outcomes priced between zero and one dollar in cryptocurrency. Users bet pseudonymously through crypto wallets, trading contracts with each other rather than against a house. The platform collects transaction fees but does not set odds or take positions. This structure, combined with offshore operations and cryptocurrency transactions, makes it extremely difficult to trace identities or prove access to classified information. Traditional securities markets have extensive monitoring and enforcement mechanisms that Polymarket lacks.“It’s about fundamental fairness,” regulatory attorney specializing in futures trading, Stephen Piepgrass, tells the Sun. “Do you want to be placing bets in an area where some people have information directly relevant to winning that bet, but you do not?”Competing Views on Market ValueProfessor of economics at Wake Forest University, Koleman Strumpf, contends that prediction markets provide valuable information despite concerns about insider trading.“I would argue these markets first and foremost tend to provide helpful information,” he tells The Sun. “Knowing the status of things in the Middle East, for example, can inform people — whether they’re investors, teachers, policymakers, or just regular citizens.”Regarding Mr. Maduro’s betting pattern, Mr. Strumpf says he’s “generally skeptical” that it proves insider trading.“On Polymarket, many accounts open and trade quickly, often on just one or two topics. That’s typical behavior,” he says. “I looked at examples in the weeks after that event and saw many accounts doing similar things — making big bets and then losing thirty thousand dollars.”He notes that someone with actual inside information would face significant risks using a prediction market. “If they’re right, there will be articles written, lots of attention, lots of scrutiny,” Mr. Strumpf says. “The pool of people with that information would be small, making it easier to identify a potential insider.”Mr. Strumpf addresses the controversy by noting that last year someone won big on the Nobel Peace Prize by exploiting poor web security rather than insider information: the Nobel website accidentally uploaded graphics for the winner before the announcement, and someone figured out how to access them.“When I first saw that the prediction was accurate, I thought it had to be insider information. It turned out it wasn’t,” he observes.Mr. Kelleher, however, sees clear national security risks.“The risk/reward calculation is going to incentivize trading, which is a leak of national security secrets, even if indirectly,” he notes. In essence, Mr. Kelleher argues that when people with access to classified information can profit hundreds of thousands of dollars from a single bet, the financial temptation may outweigh their duty to keep secrets. Even if leaking information through anonymous betting seems less risky than traditional espionage, the result is the same: adversaries can observe unusual betting patterns and potentially deduce that military operations are imminent.The Scale ProblemThe vulnerability extends beyond senior officials with top-secret clearances. Modern military operations involve massive coordination across thousands of personnel at various levels, from sailors on deployed ships to logistics coordinators to communications specialists. Each person aware of unusual deployments or heightened readiness becomes a potential leak point, particularly in an era when prediction market apps are readily accessible on smartphones.Mr. Kelleher warns that the risks extend beyond senior officials.“It’s literally hundreds, if not thousands, of civilian and military personnel involved in any operation,” he points out. “For example, 150 ships were involved in the Venezuela operation, meaning thousands of personnel were involved in or aware of deployments, and many of those were young males with the gambling site apps on their smartphones.”He underscores that adversaries could exploit betting patterns to detect impending operations.“If Maduro’s people were watching the betting markets and saw this action, they might well have concluded someone with inside info was betting and that military action was imminent,” Mr. Kelleher continues. “The entire mission could have failed as a result, and United States military personnel and others could have died.”Yet, given Polymarket’s cryptocurrency structure and pseudonymous accounts, detecting insider trading proves extremely complex.“It is extremely difficult to impossible for anyone to detect or prevent insider trading by anyone on Polymarket, which is offshore and crypto only,” Mr. Kelleher underscores. “While the event contract gambling firms claim to be transparent and on the public blockchain, everyone knows that only alphanumeric addresses for accounts are there, not any other identifying information.”Polymarket, founded in New York, was barred from operating in the United States following a 2022 CFTC settlement. The platform currently operates offshore while conducting cryptocurrency transactions. In 2025, the company acquired QCEX, a CFTC-licensed derivatives exchange, for $112 million as part of efforts to re-enter the United States market. The company received an amended CFTC order in November 2025 and has been expanding its United States operations, though several states, including Nevada and Massachusetts, have filed legal challenges arguing that the platform should be regulated as gambling under state law.Legal QuestionsThe platforms have exploited regulatory ambiguities and operated offshore to circumvent restrictions, though federal law sets clear boundaries on certain types of contracts. The Commodity Exchange Act explicitly prohibits event contracts involving terrorism, assassination, and war. CFTC Regulation 40.11 has barred such contracts for over fifteen years. “These types of bets are already expressly and categorically prohibited by law, and the CFTC should enforce the prohibition,” Mr. Kelleher explains. “And, no, there is no legitimate forecasting function that could justify this type of betting. Anything that incentivizes, intentional or not, the leaking or misusing classified information on the most important function of a country, going to war, simply cannot be allowed.”The platforms, critics argue, have exploited regulatory ambiguities and operated offshore to circumvent restrictions. Polymarket, which the CFTC barred from operating in the United States in 2022, continues serving American users through cryptocurrency platforms that make geographic restrictions difficult to enforce.Polymarket prohibits insider trading in its rulebook, stating “No Person shall take action or direct another to take action based on non-public Order information, however acquired.” The platform has previously suggested that insider activity can actually improve market accuracy. Polymarket CEO Shayne Coplan told CBS’s 60 Minutes last year that “people going and having an edge to the market is a good thing,” adding that the platform spends significant time determining “where the line is drawn” on ethics.Political Connections and Legislative Response The platforms enjoy unusual political insulation, raising questions about regulatory oversight. Donald Trump Jr. serves as an adviser to both Polymarket and its main competitor, Kalshi, while his venture capital firm, 1789 Capital, invested in Polymarket last year. CFTC Chairman Michael Selig withdrew proposed rules in January that would have reinforced prohibitions on political event contracts and sports betting.Meanwhile, 23 Senate Democrats sent a letter this month demanding Mr. Selig maintain prohibitions on contracts involving gaming, war, terrorism, and assassination. The senators warned that prediction market platforms “are already offering contracts tied to war and armed conflict that evade state consumer protections and undermine sovereign regulatory regimes.”Representative Ritchie Torres, a New York Democrat, introduced legislation earlier this year that would prohibit federal employees with access to classified information from trading on prediction markets. The Public Integrity in Financial Prediction Markets Act of 2026 would extend existing insider trading prohibitions to cover prediction market contracts, though the bill faces uncertain prospects and would cover only government employees.Meanwhile, adversary intelligence services could be monitoring these markets for operational intelligence.Polymarket recently secured a $2 billion investment from Intercontinental Exchange, the operator of the New York Stock Exchange. The investment came before the Israeli arrests, and the full scope of national security concerns became public.“I’d bet that the Iranians are currently monitoring all the sites that allow betting on military action against Iran, and I have no doubt that they will take action based on information they believe might be based on insider information,” Mr. Kelleher adds. “The risks of compromising missions and endangering the United States military are very high.”

When Betting Markets Become Bounty Systems: Polymarket’s Dangerous New Frontier

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