CFTC investigating as company raises $1 billion at $21 billion valuation
When fraudsters flooded Polymarket US in February with stolen debit cards and tried to make off with at least $10 million, employees raised alarms with Chief Executive Shayne Coplan. The compliance team was “floored” by Coplan’s response, according to people familiar with the events: “Just keep growing and pay a fine if regulators ever find out.”
The attack exploited a gap that company leadership had opened weeks earlier. To reduce friction for users on an app still in beta testing, executives scrapped a rule requiring funds to be withdrawn to the same payment source used for deposits, even though some employees warned the change could invite money laundering, according to people familiar with the discussions. Executives maintained that other protocols were sufficient. The payment processor Checkout.com subsequently told Polymarket that fraudsters were linking stolen debit cards to thousands of new accounts; one user attempted roughly 4,000 deposits, a person familiar with the matter said. At one point, Checkout.com rejected as fraudulent more than 80% of the deposits it was handling, a rate that far exceeded industry standards of roughly 1%.
Former regulators from the CFTC, the Justice Department and the Internal Revenue Service told the Journal the level of attempted fraud and the company’s response were atypical for the commodities and gambling industries. “In the regulated space, this kind of thing does not happen,” said Joe Konizeski, a former CFTC enforcement lawyer. “You have adults who handle customer funds and make sure they’re sourced appropriately and handled appropriately.” A Polymarket spokesman said the company “is committed to maintaining accurate, fair and transparent markets” and described a “market integrity framework” that “includes processes to detect, review and respond to suspicious activity.”
Polymarket now faces investigations on multiple fronts. The Commodity Futures Trading Commission is examining the company, and employees have been told to retain records related to the fraud attack and other topics, according to people familiar with the matter. The New York City Council is probing the advertising practices of Polymarket and other prediction markets. Almost two dozen traders have accused the company of deceptive business practices in lawsuits, and more than a dozen state lawsuits are simultaneously testing whether Polymarket and its competitors, including Kalshi and Coinbase, are unlicensed gambling platforms. The outcome of those cases could reshape the industry.
Coplan is pursuing a $1 billion fundraising round that would value the company at around $21 billion, with Donald Trump Jr.’s investment fund 1789 Capital committing roughly $300 million in addition to the roughly $200 million it has previously invested. At the end of July, Intercontinental Exchange, Polymarket’s largest investor, disclosed in its quarterly financial report that its $1.6 billion stake amounted to 22% of shares outstanding. Some senior ICE employees told the Journal they are worried that Polymarket has made strategic errors, and the Journal’s June reporting on a deceptive social-media campaign targeting U.S. users raised alarms at ICE and other investors concerned about federal advertising laws.
The company has been repositioning itself as more mature ahead of a potential initial public offering in the coming year. In late June, Coplan visited the Hamptons home of 1789 Capital co-founder Omeed Malik to strategize about professionalizing the operations; Malik advised hiring more experienced executives. Polymarket has since brought on its first chief financial officer, Warren Jenson, who was Amazon’s CFO in the early 2000s, and has added risk-management staff including a former FBI agent. Following the Journal’s investigation into the deceptive social-media campaign, Polymarket restructured its marketing team, including hiring the founder of electric-scooter company Bird as chief of growth.
Internal fallout from the February attack has been significant. Polymarket US’s chief compliance officer, Andrew Clifford, resigned in April after sending a lengthy report outlining fraud issues to company executives, according to people familiar with the report. Both Clifford and Polymarket declined to comment on his departure. Soon after, the company fired the U.S. division’s CEO, Justin Hertzberg, and its heads of U.S. regulation and anti-money-laundering left. An investigation by the law firm Sullivan & Cromwell concluded the company had complied with regulations, according to people familiar with the findings. By May, a person familiar with the matter said, Polymarket had brought fraud rates back to the industry norm, in part by limiting the number of debit cards users could link to their accounts, and the company retained a new antifraud contractor, Riskified.
Individual customers have described bearing the cost of those breakdowns. Dane Collins, 26, said he started using Polymarket US in May to bet on the World Cup after rival Kalshi was blocked by a court order from offering sports markets in Michigan. In July, he logged in to see that his bets had been sold and $5,783.51 in gains withdrawn to a debit card he did not possess. Without explanation, a Polymarket employee credited his account $25. Collins said he has filed reports with local police, the FBI and the CFTC. Other users reported similar experiences: a New York man said $950 was missing from his account after the app crashed in July, a California woman said she has been unable to withdraw $1,500, and a 22-year-old in Massachusetts said his account was locked and he could not reach Polymarket employees after dozens of attempts. A Polymarket spokeswoman said the company would cover any lost funds.
In late July, nearly 500 Polymarket users were victims of another fraud attack that appeared to exploit an engineering flaw. If a malicious actor attempted to create a new account using an existing trader’s personal information — such as a stolen Social Security number — the hacker would immediately gain access to the trader’s existing account and any linked bank accounts and debit cards without needing a password or username, according to a person familiar with the matter. The amount of money stolen was small, but the episode underscored the technical risks of the company’s rapid expansion.
Polymarket has been barred from offering its international platform to American users since a 2022 settlement with federal regulators. Last summer, it paid $112 million for a licensed exchange that executives converted into Polymarket US. The U.S. app opened to early users in December, and traders deposited more than a half-billion dollars into their accounts, according to a person familiar with the matter. By January, however, the U.S. app was handling less than $300 million in betting activity compared with more than $7.6 billion on the international platform.
Coplan has pushed for high-profile partnerships to build the brand. The company struck deals with LeBron James and a $300 million agreement with Major League Baseball. James’s team told a prediction-market competitor that Polymarket had offered him $20 million a year plus $50 million in equity, according to a person familiar with the talks; James does not currently have an equity stake in Polymarket. Last fall, Polymarket was in talks with the musician Drake about an agreement in the tens of millions of dollars; spokespeople for both sides said no deal was signed. Drake subsequently name-dropped both Polymarket and Coplan in his album “Iceman,” and Coplan attended Drake’s private album-release party in Toronto. In late April, Polymarket opened a market on whether Drake would say “Polymarket” on the album. Hours before the release, Drake’s team played the album for Polymarket employees, who heard the company name and deleted the market out of concern about insider-trading risk, according to data reviewed by the Journal and a person familiar with the matter.
Current and former employees described Coplan as unfiltered and intense, saying he had berated employees in the office, that late nights were common and that Adderall use was widespread. In a recording reviewed by the Journal, Coplan responded to a discussion about dispute resolution by saying, “Bro, it’s just retarded! And the way you guys bitch about this s— is so stupid.” In text messages reviewed by the Journal, Coplan suggested potential markets including “How many times does kanye say Jew on X this week” and “Elon calls someone new a retard.” Those markets were never listed. When employees questioned whether Polymarket had paid too much for a marketing deal, Coplan responded, “I don’t give a f—,” according to a person involved with the deals.
A Polymarket spokeswoman said the company “is rapidly growing and getting better every day” and “proud of our key leadership hires and continuous infrastructure upgrades,” adding that it “has quickly scaled and remain focused on growing responsibly at the frontier of finance, tech, and culture.”