How to Prevent Insider Trading on Trump’s Wars
Given the rampant corruption surrounding the Trump administration, it’s reasonable to wonder whether the opportune bets are coming from people directly connected to the White House. But there are also other possibilities. An analysis of Polymarket data by the Times showed that on Friday, February 27, more than one hundred and fifty accounts each bet more than a thousand dollars that a US strike against Iran would occur the next day. Preparing to launch such an attack surely involved briefing large numbers of people, including members of the U.S. and Israeli military chain of command, well-connected diplomats, and ordinary soldiers or airmen called into action. Earlier this year, Israeli authorities charged two people, a civilian and a military reservist, with using classified information to place bets on Polymarket. “Part of the problem is that there are so many insiders,” Dennis Kelleher, president and co-founder of Better Markets, a Washington-based public interest group, told me. “We encourage many people to use their knowledge of classified information for their own benefit.”
The fundamental problem, according to Kelleher, is the way prediction sites are regulated and monitored – or rather unregulated and monitored. Despite Murphy’s statement that betting on Iranian strikes is legal, using classified information to make a profit is potentially a serious crime in the United States. Additionally, in 2011, the Commodity Futures Trading Commission (CFTC), which has jurisdiction over “event contracts” under the Commodity Exchange Act, issued a ruling that contracts involving terrorism, assassination, or war were contrary to the public interest and prohibited on a U.S. exchange.
In practice, however, it is relatively simple to circumvent these laws and regulations by exploiting the anonymity of prediction platforms, notably Polymarket. And there’s no reason to worry about getting caught. Although Polymarket is based in New York (it was founded in 2020 by Shayne Coplan, a young entrepreneur who left NYU to pursue crypto projects), its main prediction platform operates overseas. This structure means it is not subject to know-your-customer laws, which require most U.S.-based financial institutions, including crypto exchanges, to verify the real identities of their customers and monitor their transactions. The fact that bets on Polymarket are placed on the blockchain, which is extremely difficult to penetrate, provides an additional layer of protection for potential profiteers.
Technically, it is still a violation of U.S. securities laws for a U.S. resident to bet on Polymarket’s offshore market, but many people get around this by installing a virtual private network, or VPN, that hides their IP address and using it to connect their crypto wallet to the site. Can you blame them when the president made his fortune promoting his family’s crypto companies and has shown few qualms about crypto’s criminal underbelly? Last year, he pardoned Ross Ulbricht, who was serving a life sentence for running Silk Road, a dark web marketplace frequented by drug traffickers, and Changpeng Zhao, the billionaire founder of crypto exchange Binance, who had pleaded guilty to failing to maintain effective anti-money laundering programs. In the current administration, U.S. regulators and law enforcement appear to largely turn a blind eye to crypto violations. Under the Biden administration, the Justice Department and the CFTC launched investigations into whether Polymarket was illegally accepting bets from people in the United States. But last summer, both agencies informed the company that they had closed their investigations and would take no further action.
A few months after this news broke, Polymarket announced that Donald Trump, Jr., was joining the company’s advisory board and that 1789 Capital, the venture capital firm he is a partner in, had made a “strategic investment” in the company. Donald Jr. also acts as a “strategic advisor” to Kalshi, which is another prediction market, but operates in the United States. Earlier this year, the CFTC withdrew a Biden-era effort to block Kalshi from accepting bets on the outcomes of sporting events and political elections. The agency’s Trump-appointed chairman, Mike Selig, said last week he was preparing new rules for prediction markets, but most observers expect the agency to stick with its light-touch approach.
