US Lawmakers Target Insider Trading on Prediction Markets

The catalyst for new legislation was a single, extraordinarily timed wager on the prediction market platform Polymarket. According to reports, a newly created account placed roughly $32,500 in bets on a contract asking whether Venezuelan President Nicolas Maduro would be out of power by January 31, 2026. The stake purchased approximately 438,000 shares when the market price was as low as $0.07 per share late on Friday, January 2, 2026.

Within about 24 hours, the position surged in value, returning more than $400,000 to the account. This dramatic profit followed action by US forces and an announcement by US President Donald Trump regarding Maduro’s capture. The trade’s timing—executed just hours before the public announcement—set off immediate questions on social media, with investors and observers flagging the purchase as highly suspicious. The scale of the gain was underscored by pricing on other platforms; reports note that Kalshi had priced similar outcomes at roughly $0.13, indicating how unexpected the event was to the broader market.

In direct response to this incident, US Representative Ritchie Torres (D-N.Y.) announced he will introduce legislation dubbed the Public Integrity in Financial Prediction Markets Act of 2026. The bill, as described by a source, aims to prohibit federally elected officials, political appointees, and executive branch employees from trading on event markets when they hold material nonpublic information because of their official roles.

The proposal seeks to adapt principles from existing rules that limit trading by officials in traditional securities markets and extend them to online prediction exchanges like Polymarket. The draft language would make it unlawful for covered government figures to trade on contracts tied to government actions or political events when they possess privileged information. Furthermore, the measure would task financial regulators with clarifying which prediction platforms are covered by the rules and establishing how violations would be investigated and enforced.

The incident has cast a harsh light on the operational realities of prediction markets. While platform operators, including Polymarket, have long stated that their terms of service forbid trading on material nonpublic information, critics argue these rules are notoriously difficult to police in real time. The speed at which prediction markets can move on small flows of information complicates oversight, and enforcement mechanisms vary widely across different platforms.

This episode demonstrates a clear gap between written policies and effective, real-world oversight. Some analysts and lawmakers contend that without clear legal guardrails, prediction markets remain vulnerable to exploitation by individuals with access to privileged knowledge. Investigations into the suspicious Polymarket trade will likely focus on the account’s origins and any potential links to individuals with nonpublic information about the US operation in Venezuela.

The legislative push, however, is not without its critics. Some market participants warn against regulatory overreach that could stifle legitimate market activity used for forecasting and public research. The debate now centers on whether new rules can effectively prevent insider trading without undermining the utility of prediction markets. If Congress moves quickly, the rules governing who may legally bet on political and national security events could be fundamentally reshaped.