Prediction markets, like Polymarket and its main rival, Kalshi, thrived during Trump’s second term.
Gabby Jones/AFP via Getty Images
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Gabby Jones/AFP via Getty Images
Polymarket investigated “dozens” of bets on its prediction markets related to the midterm elections, according to Shana Bautista, the company’s head of global intelligence and investigations.
At least two of those investigations by Polymarket have been referred to its regulator, the U.S. Commodity Futures Trading Commission, according to a person familiar with those investigations but not authorized to speak publicly about them.
These investigations into insider trading and election manipulation come as prediction marketplace Polymarket – and its main competitor Kalshi – have exploded in popularity over the past year. But the fast-growing sector also faces significant legal challenges from states and political resistance from lawmakers, who say betting on the outcome of elections poses serious risks to the democratic process.
In April, Kalshi banned a handful of political candidates from betting on themselves and fined them. A month later, NPR reported that campaign staffers had made “thousands” using information from insider polls to bet on their own candidates on platforms like Polymarket and PredictIt.
Polymarket’s Bautista — a former FBI official and cryptocurrency analyst — told NPR that his 16-person team and a new election monitoring system are actively monitoring election betting ahead of the Nov. 3 midterm elections.
“If you have information that you have a duty to protect, don’t negotiate with it,” Bautista said. “It’s explicitly against our terms of service on both platforms, but it’s also against the law. If you decide you’re smarter and can do it, we’ll find you.”
Bautista joined Polymarket in June. She oversees information collected on both the U.S.-regulated version of Polymarket, which requires users to provide their real identities, and its bigger brother, Polymarket International, which is essentially unregulated and where trading can be done anonymously and with cryptocurrencies. Despite this, Bautista said crypto transactions are rarely completely anonymous.
“There’s never been a case where we’ve worked where we couldn’t identify, potentially, who these people are,” Bautista said.
It said its election monitoring system scrapes “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 encounters a certain number of internally defined red flags, Bautista receives an alert on their phone.
“We receive hundreds of alerts a day,” Bautista said.
When asked about specific detection criteria and thresholds, Bautista did not comment citing the security of the system. But she said insider trading and market manipulation all look the same, regardless of the financial market.
“We study threat vectors and risk areas that have existed for decades in traditional markets,” Bautista said. “But we also recognize that when it comes to prediction markets, we’re seeing some of the old tried and true tactics being applied to a new vector through prediction markets.”
Last May, Kalshi, Polymarket’s main rival, announced its own election monitoring system that also uses FEC data. Their system would prevent any FEC-listed campaign staffer from betting on an election. In July, Kalshi said he blocked “dozens” of staffers from negotiating on the election, although at least one staffer told NPR they worked around that. The staffer shared recordings of his recent interactions and spoke to NPR on condition of anonymity for fear of consequences for his future employment.
Election prediction markets are particularly vulnerable to market manipulation and insider trading, said Rajiv Sethi, an economics professor at Columbia University’s Barnard College who has studied prediction markets for decades.
“(Election prediction markets) have the potential to be a self-fulfilling prophecy,” Sethi said. “Elections have the property that what you think is going to happen can actually affect what happens if you think a candidate is losing momentum or the campaign is running out of steam.”
Bautista said his team and monitoring system at Polymarket are learning from past cases and putting themselves in the shoes of potential insiders and market manipulators.
“If I were worried about someone trying to materially move an election market to make it seem like one option is more likely to happen than the other and I identify a pattern where they’re opening multiple different accounts and they’re doing it in short bursts and I’m seeing consistent device IDs in different transactions placed in short succession with new wallets on five or four different accounts,” Bautista said. “If I were to work on this case and then take action, the results of this tactic would be reflected in the process of creating the detections.”
While prediction markets have exploded in popularity over the past two years, the industry’s federal regulator, the CFTC, has done little to police these new financial markets, leaving much of that work to the companies themselves.
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