New Betting Rules Sparks Insider Trading Fears

Polymarket’s launch of bets tied to startup performance has raised concerns among legal experts who believe this could open up a new avenue for insider trading on prediction markets.

On Tuesday, Polymarket announced that it had partnered with Nasdaq Private Market to launch event contracts on certain private company milestones. These include valuations or the timing of public offerings for firms like SpaceX and Anthropic which do not sell shares to the general public and are typically owned by small groups of founders, employees, and private investors.

The move has been heralded by prediction market enthusiasts as democratizing access to the marketplace of pre-IPO companies. And Polymarket said that the launch will grant non-institutional traders previously restricted exposure to the hundreds of unicorns-startups valued at over $1 billion-currently operating worldwide.

But legal experts who spoke to Newsweek are skeptical of the move, one warning it raises “serious concerns” that employees of these companies may be motivated to make trades based on their nonpublic knowledge.

Newsweek has contacted Polymarket for comment.

‘Democratizing’ Financial Markets

According to Polymarket, nearly 1,600 billion-dollar “unicorns” across the globe now represent over $5 trillion in combined value, and the launch of private market bets aims to address a long-standing frustration of everyday investors. As increasingly valuable companies take longer to go public-often more than a decade-most outside institutional and high-net-worth circles are denied the opportunity to capitalize on their early-stage growth.

Shayne Coplan, Polymarket's founder and CEO, said the move pushes one of the “last frontiers of financial markets,” and means that “for the first time, anyone can engage with the outcomes driving value at the world’s most consequential private companies.”

But the expansion of its offerings comes amid widespread unease about prediction markets’ expanding role in financial and political spaces.

Lawmakers from both sides of the aisle have called for greater oversight of platforms like Polymarket, fueled in part by reports and indictments related to insider tradingon U.S. foreign policy decisions in 2025. This has created a confrontation between state and federal regulators-split over whether to treat event contracts as gambling-while prompting some states to pursue outright bans.

In response to concerns over users making trades based on nonpublic knowledge, Polymarket has adopted new “market integrity rules” to clamp down on “insider trading and market manipulation,” according to an announcement from the company in March, while also stressing its cooperation with law enforcement when dealing with unlawful behavior on its platforms.

Following the arrest of Gannon Ken Van Dyke, a U.S. soldier charged with betting on when special forces would capture Venezuelan leader Nicolás Maduro while allegedly holding inside information on the operation, Polymarket’s founder said it had assisted authorities in the preceding investigation.

“We flagged this, referred it, and cooperated throughout the process,” Coplan posted to X. “This happens constantly behind the scenes, despite what many are led to believe.”

Experts Concerned Over Polymarket’s New Contracts

Since the announcement on Tuesday, a number of event contracts relating to pre-IPO firms have been launched on Polymarket’s website. These include wagers on whether the AI firm Anthropic will hit a $1 trillion-plus valuation by the end of the year, and when Elon Musk's SpaceX will go public-having revealed its plans to do so this week.

But according to some, the nature of these contracts raises new legal and ethical concerns, which fall into two categories: whether company insiders could misuse nonpublic information to trade, and whether the contracts themselves fall under securities or commodities rules.

Private firms are not bound to the same disclosure requirements as those which are publicly listed. But as Polymarket said on Tuesday, its new contracts will offer a “real-time signal for institutional investors on how private markets are unfolding.”

However, Cindy Schipani, a professor of business administration and law at the University of Michigan’s Ross School of Business, notes that the opaque nature of private firms means the only way these “signals” could have any use is if “insiders are betting in these markets.”

“This raises serious concerns about breach of fiduciary duty,” she told Newsweek. “Essentially the ‘bet’ would be based on nonpublic information, for which the insider has a duty not to disclose, and a corresponding duty to not base trades upon.”

John C. Coffee, Jr., a legal scholar and director of the Center on Corporate Governance at Columbia Law School, said that bets on a company's projected valuation closely resemble stock options-financial contracts granting holders the right to buy or sell at a set price.

Such markets could therefore prove attractive to “traders with inside information,” as they will be able to place bets “more anonymously than in the options markets and face a far lower risk of enforcement.” The Securities and Exchange Commission (SEC) “would have no jurisdiction,” Coffee said, given Polymarket’s event contracts are legally treated as derivatives rather than securities, while the Commodity Futures Trading Commission (CFTC), which oversees it, has “limited enforcement resources.”

“This announcement made my jaw drop,” said Andrew Verstein, professor of law at UCLA School of Law, adding that the offering of these event contracts effectively amounted to selling unregistered securities.

“Prediction contracts based on corporate milestones are securities-based-swaps, and such swaps are regulated as securities,” he explained. “Polymarket cannot legally offer these to U.S. retail investors.”

Prediction Markets Now Battling State-Level Bans

Verstein added that he was “stunned” Polymarket would take such a step while it is working to bring its main exchange back to the U.S. American residents are currently blocked from accessing this platform, a ban which traces back to the company's 2022 settlement with the CFTC.

In addition to its uncertain path back to full regulatory clearance, Polymarket is also grappling with state-level opposition to prediction markets.

This week, Minnesota Governor Tim Walz signed a law banning prediction markets from operating in the state-the first such prohibition in the U.S. The legislation makes it illegal to host or promote sites like Polymarket within Minnesota-crimes punishable by up to five years in prison.

Spokespersons for Polymarket and the rival platform Kalshi told the New York Times that they remain subject to federal regulation and are therefore not under Minnesota’s jurisdiction.

Michael Selig, the Donald Trump-appointed chairman of the CFTC, criticized the law as turning “lawful operators and participants in prediction markets into felons overnight,” and the agency has already filed a lawsuit against Minnesota to block the move.

The agency is hoping to halt enforcement of the law before it becomes effective on August 1.

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This story was originally published May 22, 2026 at 3:48 AM.