Prediction Market Scrutiny Expands Beyond Insider Trading Into Market Governance

Over the past year, the rapid rise in popularity of prediction markets has been accompanied by insider trading and suspicious geopolitical trading activity. But a new Wall Street Journal (WSJ) investigation is shifting attention to another issue entirely: who ultimately decides the outcomes in disputed markets.

The report highlighted that Polymarket does not resolve disputes internally but instead relies on the third-party service UMA. Holders of UMA’s digital tokens effectively act as arbitrators; the more tokens someone holds, the more weight their vote carries. In comparison, other prediction market platforms, such as Kalshi, resolve disputes themselves.

On the same day, CBS’s 60 Minutes aired a report examining suspicious betting activity on Polymarket tied to U.S. military actions against Iran. Additionally, a recent article by The New York Times has highlighted broader concerns about coordinated trading and potential insider trading in prediction markets.

Together, the investigations illustrate how scrutiny of prediction markets is expanding beyond trading behavior into the broader question of whether the platforms’ governance and settlement systems can scale credibly as the industry grows.

Insider Trading Concerns Continue Escalating

As prediction markets have grown rapidly over the past year, so have recurring questions about insider trading, particularly around geopolitical events.

Earlier this year, news broke about questionable activity tied to the U.S. capture of Venezuelan President Nicolás Maduro. One newly opened account profited more than $400,000 on markets tied to the operation.

In April, federal prosecutors charged a U.S. Army Special Forces soldier who was directly involved in the operation. Prosecutors alleged the soldier used classified information to place profitable wagers ahead of the military operation.

According to a previous WSJ report, regulators and prosecutors have issued multiple information requests to Polymarket and Kalshi regarding suspicious trading activity in political and military markets.

David Miller, enforcement director at the Commodity Futures Trading Commission, said prediction market insider trading had become “a real problem.”

It has serious consequences for market integrity and trust,” Miller said.

The 60 Minutes report further intensified those concerns.

According to blockchain analytics firm Bubblemaps, nine connected Polymarket accounts allegedly generated more than $2.4 million in profits with a 98% win rate while betting on developments tied to the Iran conflict, including U.S. strikes and ceasefire announcements.

Former CFTC official Rob Schwartz told CBS:

This is a new kind of insider trading.”

The report also highlighted national security concerns tied to wartime prediction markets. Investigators have warned that unusual trading activity could potentially reveal military developments before they become public.

Meanwhile, the New York Times investigation identified more than 80 Polymarket users displaying suspicious trading characteristics tied to military actions, political events, and regulatory developments.

The report said more than 11,000 Polymarket accounts exhibited suspicious betting patterns. Those include well-timed long-shot wagers, newly created accounts, and unusually consistent profits.

WSJ Investigation Shifts Focus Toward Market Governance

While insider trading concerns focus on the advantages of non-public information, the WSJ investigation raised a different issue: whether the disputed prediction markets themselves can be resolved fairly and credibly.

The Journal reported that:

• More than 60% of active UMA voters could allegedly be linked to Polymarket accounts.
• Nearly one in five disputes involved at least one voter with a financial stake in the outcome.
• In most disputes, more than 50% of the votes are concentrated in the 10 largest wallets.

The report also highlighted criticism from traders and crypto investors who said the UMA voting system is “ripe for abuse.” It noted that nothing prevents token holders from voting on disputed wagers in which they have a personal stake.

James Fry, a spokesman for Risk Labs, the foundation behind UMA, told the Journal it had never seen any credible evidence of UMA manipulation. But even Polymarket founder Shayne Coplan has previously acknowledged that the dispute-resolution process is “messy.”

Dispute resolution is important as prediction markets sometimes offer contracts around ambiguous or evolving real-world events.

Even platforms using centralized settlement systems have faced scrutiny over ambiguous contract wording and resolution standards.

Earlier this year, the settlement of a Super Bowl novelty market involving Cardi B’s halftime appearance sparked controversy and confusion among some Kalshi users. Some traders filed complaints with the CFTC about how Kalshi resolved contracts.

The WSJ report suggests that those disputes may increasingly evolve from isolated controversies into broader governance concerns as prediction markets continue to scale.

Trust and Governance Could Become the Sector’s Next Major Challenge

The growing scrutiny around insider trading, settlement governance, and market surveillance increasingly places prediction markets closer to financial-market infrastructure debates than traditional gambling controversies.

That distinction may become increasingly important as prediction markets continue positioning themselves as financial information markets rather than sportsbooks.

The WSJ also highlighted concerns about recordkeeping and anonymity, noting that Kalshi doesn’t request employer information, unlike many stock brokerages. Meanwhile, Polymarket’s international exchange, accessible to U.S. users via VPN, doesn’t comply with U.S. laws requiring brokers to collect information about individual traders.

Former SEC Chair and current Manhattan U.S. Attorney Jay Clayton questioned whether prediction markets could maintain public confidence without a stronger compliance infrastructure.

If they are going to function in a way that society can have confidence in them, I think they are going to have to have that record-keeping,” Clayton said.

At the same time, platforms continue defending the informational value and transparency of prediction markets.

In a previous interview, Coplan argued that prediction markets create incentives for information to reach markets more quickly.

What’s cool about Polymarket is that it creates this financial incentive for people to go and divulge the information to the market.”

In a statement, Polymarket said it has implemented AI-powered surveillance and blockchain forensic tools. It added that it’s cooperating with law enforcement in investigations into suspicious trading activity.

Still, the growing scrutiny suggests the integrity debate surrounding prediction markets is increasingly expanding beyond whether traders possess unfair informational advantages.