CFTC Deploys AI to Hunt Insider Traders on Offshore Prediction Markets

Michael Selig, chairman of the Commodity Futures Trading Commission, sat down in the agency's Washington headquarters this week with a message: the government is watching prediction markets, and it is coming for the traders who think they can slip through the cracks.

For the past year, offshore prediction markets have been a Wild West of suspicious activity. On Polymarket, a cryptocurrency-based platform technically beyond US regulatory reach, traders have made fortunes from bets placed at suspiciously convenient moments—right before the raid on Venezuela, right before the Iran War. The platform itself is blocked to American users, but that has not stopped them. They use virtual private networks to tunnel in, place their bets, and vanish. For months, it was unclear whether the federal government would even try to stop them.

Now the CFTC is signaling that it will. The agency oversees prediction markets, and Selig says it is staffing up and deploying artificial intelligence to hunt down the traders breaking the law. The tools analyze trading patterns in real time, flagging the moments when someone seems to know something they should not. "You've got so much data," Selig explained. "When we feed it into AI, we get really great information. It can help us understand things, like where we might want to investigate, or when we might need to send a subpoena to a trader." The CFTC is also using third-party blockchain tracing software like Chainalysis, which can follow cryptocurrency transactions across exchanges and wallets, and market abuse detection systems designed for traditional exchanges. The agency declined to name all of its tools or explain exactly how they work.

Polymarket itself has begun to move. In April, after mounting pressure over insider trading allegations, the company announced a partnership with Chainalysis to monitor its offshore platform. It also updated its market integrity rules and partnered with Palantir for its US-based sports betting markets. The company's CEO, Shayne Coplan, had previously argued that insider trading could actually benefit prediction markets by making them more efficient. That position has shifted. Polymarket did not respond to requests for comment on this story. Kalshi, Polymarket's main competitor and a US-based exchange, has been more vocal, publicly announcing that it has suspended and penalized customers flagged for insider trading and manipulation.

The pressure on these platforms is coming from multiple directions. In March, Connecticut senator Chris Murphy told reporters he suspected White House staffers of trading on war-related contracts. In early April, seven members of Congress sent a letter to the CFTC asking it to investigate overseas markets offering contracts tied to military action, calling some of the trades "morally obscene." Selig recently told Congress that the agency is pursuing "hundreds, if not thousands" of insider trading tips.

So far, one person has been charged. On April 23, federal agents arrested a US Army special forces soldier for trades he made on Polymarket last year tied to the capture of Venezuelan leader Nicolas Maduro. After the arrest, Polymarket claimed it had already flagged the trade to authorities. The case illustrates both the CFTC's reach and its limitations. Selig says the agency will use extraterritorial jurisdiction—its legal power to enforce American law beyond US borders—when it finds wrongdoing on offshore platforms, but he is cautious about overreach. "We use it in extreme circumstances," he said. "In any extraterritorial litigation, there's going to be challenges to our authority, and that could also impair our ability to bring cases in the future." The 2010 Dodd-Frank Act gives the CFTC more authority over foreign swap activities that affect the US market, which provides some legal foundation for these actions. When the agency is uncertain about winning a case or when the violation is primarily a foreign matter, it refers cases to regulators in other countries.

Selig was emphatic that the CFTC is only beginning. The agency will find wrongdoers, he said, regardless of their size or prominence. The question now is whether the tools—the AI systems, the blockchain tracers, the expanded staff—can actually deliver on that promise, and whether the legal challenges to extraterritorial enforcement will slow the agency down.