SEC Eyes Prediction Market Earnings Contracts for Fraud

The U.S. Securities and Exchange Commission is actively monitoring prediction markets for insider trading, fraud, and market manipulation, with a particular focus on event contracts tied to corporate earnings and key performance indicators. SEC Enforcement Director David Woodcock confirmed that the regulator expects to pursue enforcement actions against potential securities violations on prediction platforms, according to a Bloomberg report.

Contracts that allow traders to wager on financial metrics such as quarterly earnings per share or sales revenue could fall directly under SEC oversight. Woodcock emphasized that the agency is prepared to act when individuals commit fraud or violate federal securities laws, noting that enforcement actions are anticipated in the future, although no specific firms or charges were announced.

Jurisdictional Lines and Derivatives Rules

The regulatory scrutiny comes as the SEC and the Commodity Futures Trading Commission evaluate how federal derivatives frameworks apply to emerging event-contract platforms. The SEC previously approved a proposal from Cboe Global Markets for binary options tied to company performance metrics, including Apple sales revenue and Citigroup earnings, categorizing those specific instruments as options on securities.

Meanwhile, the CFTC maintains primary oversight over federally registered prediction exchanges such as Kalshi and Polymarket's U.S. operations. The CFTC is currently contesting state-level gambling restrictions, including filing a lawsuit against Utah on October 26 to protect federal oversight of event contracts.

Scrutiny Over Privileged Information

Regulators and prosecutors have already intervened in cases involving alleged exploitation of non-public information on prediction venues. In April, federal authorities charged a U.S. soldier with using classified intelligence to generate more than $400,000 on Polymarket bets related to the capture of Venezuela's former president Nicolás Maduro. Both Kalshi and Polymarket have stated that they prohibit insider trading and cooperate with market regulators.

Key facts

• SEC Enforcement Director David Woodcock confirmed the agency is tracking prediction markets for fraud and insider trading.
• Scrutiny centers on event contracts tied to corporate metrics, quarterly earnings, and sales performance.
• The SEC previously classified Cboe corporate performance binary options as options on securities under federal law.
• The CFTC filed a lawsuit against Utah on October 26 over state gambling enforcement against federally regulated exchanges.