Israel Arrests Two for Military Insider Trading on Polymarket

According to Israeli prosecutors, an IDF reservist accessed highly classified information concerning Israel’s planned military operations, including details about a potential attack on Iran scheduled for June 2025. This sensitive intelligence was allegedly shared with a civilian accomplice to place multiple bets on Polymarket, a platform where users can wager on real-world events using cryptocurrency. The two defendants face severe charges, including security offenses, bribery, and obstruction of justice. While most identifying details remain classified, authorities clarified that the individuals are not senior military or government officials.

In a joint statement, Israel’s domestic security agency, Shin Bet, and the Israel Police emphasized the gravity of the incident, stating that such insider trading on Polymarket poses “a real security risk to IDF operations and to the security of the state.” They indicated the arrest involved “several suspects” and multiple “reservists,” though no further cases have been made public. This framing positions the activity not as a victimless financial infraction but as a direct threat to national security, viewed by the government “with utmost severity.”

One defendant’s attorney contested the charges, describing their client as “a highly regarded individual who has made a significant contribution to Israel’s security” and alleging “selective enforcement.” This defense highlights the complex legal and reputational stakes involved, pitting claims of patriotic service against accusations of betraying state secrets for personal gain on a global betting platform.

The case throws a harsh spotlight on Polymarket’s operational philosophy. The platform did not immediately comment on the arrests or whether the alleged trades violated its terms of service. However, it has previously suggested that insider trading activity can, paradoxically, improve market accuracy by incorporating non-public information into price signals. This stance fundamentally challenges traditional financial market regulations, which strictly prohibit trading on material non-public information to ensure fairness and integrity.

This incident tests the practical limits of that philosophy when the “non-public information” is state military secrets. The Israeli government’s severe reaction illustrates a clear boundary: when prediction market activity risks exposing active military plans or compromising operational security, national sovereignty concerns will override any theoretical arguments about market efficiency. The platform now faces scrutiny over whether its mechanisms can or should prevent trades based on illegally obtained classified information.

The Israeli case emerges amid a competitive and evolving landscape for prediction markets. Polymarket’s chief U.S. rival, Kalshi, has explicitly attempted to position itself as more legally compliant. Last week, Kalshi’s CEO, Tarek Mansour, publicly emphasized the platform’s prohibition of insider trading. However, this stance was almost immediately tested when insiders appeared to successfully bet on surprise appearances during the Super Bowl halftime show, based on presumably non-public information.

During a subsequent CNBC interview, Mansour struggled to define who constitutes an “insider” in such scenarios—whether backup dancers, cameramen, or others—and what steps Kalshi took to prevent such trading. This episode reveals the pervasive difficulty of enforcement in prediction markets, even for platforms that publicly ban the practice. The contrast is stark: while Kalshi grapples with entertainment-related insider bets, Polymarket is implicated in a case with profound national security implications in Israel.

Together, these developments signal a critical inflection point for the crypto betting industry. As prediction markets like Polymarket expand into forecasting geopolitical and military events, they inevitably attract participants with privileged access. The Israeli arrests demonstrate that governments will not tolerate the weaponization of state secrets for profit, potentially prompting stricter global scrutiny. The industry must now navigate a treacherous path between fostering innovative, informative markets and preventing their abuse in ways that threaten real-world security and stability.