Polymarket election-betting probes reportedly yield at least two CFTC referrals

Bautista says Polymarket surveillance generates hundreds of daily election-betting alerts

At least two Polymarket investigations into election-related bets have been referred to the U.S. Commodity Futures Trading Commission, according to a person familiar with the probes who was not authorized to speak publicly. Polymarket has investigated “dozens” of election-related bets, said Shana Bautista, the company’s head of global intelligence and investigations. Bautista said the company’s 16-person team and new election surveillance system are actively policing election bets ahead of the Nov. 3 midterms.

The investigations concern election insider trading and manipulation. They come as Polymarket and chief competitor Kalshi have grown sharply in popularity over the past year. NPR reported that the industry’s federal regulator, the CFTC, has done little to police prediction markets over the past two years as crypto and prediction markets expand, largely leaving that work to the companies themselves. The fast-growing industry also faces significant legal challenges from states and political pushback from lawmakers, who argue that betting on election outcomes poses serious risks to the democratic process.

Concerns about insiders surfaced before. In April, Kalshi banned and fined a handful of political candidates for betting on themselves. NPR reported a month later, in May, that campaign staffers had made “thousands” using insider polling information to bet on their own candidates on platforms like Polymarket and PredictIt.

In May, Kalshi announced its own election surveillance system, also drawing on Federal Election Commission data. The system purportedly blocks any campaign staffer listed by the commission from betting on an election. In July, Kalshi said it had blocked “dozens” of staffers from trading on elections, though at least one staffer told NPR they got around the system. That staffer shared records of recent trades and spoke on condition of anonymity because of fear of consequences for future employment.

Election prediction markets are uniquely vulnerable to market manipulation and insider trading, said Rajiv Sethi, an economics professor at Barnard College at Columbia University who has studied prediction markets for decades. He also said such markets can affect the outcomes they reflect. “[Election prediction markets] have the possibility of being a self-fulfilling prophecy,” Sethi said. “Elections have the property that what one believes is going to happen can actually affect what happens if a candidate is thought to be losing momentum or the campaign is flagging.”

Bautista said Polymarket’s election surveillance system pulls in “gigabytes” of data on each user from social media, Federal Election Commission data, cryptocurrency companies, banking partners, statistical models and other public information sources. If a user hits a certain number of internally defined red flags, Bautista gets an alert on her phone. “We’re getting hundreds of alerts a day,” she said.

She did not disclose the system’s specific detection criteria or thresholds, citing system security. Bautista said insider trading and market manipulation look the same regardless of the financial market. “We’re looking at threat vectors and risk areas that have existed for decades in traditional markets,” she said. “But we recognize, too, that when it comes to prediction markets, we’re seeing some of the old tried and known tactics, but being applied to a new vector through prediction markets.”

Bautista warned users not to trade on information they had a duty to protect: “If you have information that you have a duty to protect, don’t trade on it,” she said. She said the practice was explicitly against the terms of use on both platforms and against the law. “If you decide that you are smarter and can do it, we will find you,” she said.

Bautista, a former FBI official and cryptocurrency analyst who joined Polymarket in June, oversees information gathered from both the U.S.-regulated version of Polymarket, which requires users to provide their real identities, and the larger Polymarket International operation, which NPR described as essentially unregulated and where trading can be done anonymously with cryptocurrency. Despite this, cryptocurrency trades are rarely completely anonymous, Bautista said. “There’s never been a case that we work where we haven’t been able to identify, potentially, who these people are,” she said.

Bautista said the team and surveillance system learn from past cases by putting themselves in the shoes of would-be insider traders and market manipulators. She described a possible case in which someone tries to materially move an election market to make one option appear more likely to happen than the other, using several accounts, short bursts of trades, consistent device IDs across trades placed in short succession and new wallets across four or five accounts. “If I were to work that case and then action that, the findings of that tactic go back into the process to create the detections,” she said.