A series of suspicious oil trades earlier this year, during the US-Israeli conflict with Iran, prompted the White House to go so far as to send a staff-wide email warning against insider trading. Remarkably prescient trades had become such a regular occurrence that President Donald Trump’s government had grown concerned with the optics — and that’s saying something for an administration that has flaunted its conflicts of interest!
Well-founded concerns persist that the government is doing too little to police insider dealing in both new and traditional markets. Prediction markets, in particular, have become an invitation to anyone with a nugget of information to place bets using hyper-specific event contracts concerning policy decisions and other government actions.
A New York Times report detailed dozens of dubious and previously unscrutinized trades on the prediction platform Polymarket. CBS News reported on nine connected Polymarket accounts that have made more than $2.4 million betting almost entirely on US military actions. The company has said that “insider trading has no place on Polymarket,”1 and that it refers cases involving classified government information to the Justice Department. But it goes beyond the new event contract markets. Oil futures again suspiciously sold off this month before an Axios scoop that suggested progress toward ending the Iran war.
It’s the type of behavior that harks back to the anything-goes stock market of the 1920s when a regulatory vacuum allowed an informed elite to profit off the backs of the masses. Long after the financial anarchy culminated in the 1929 crash and the Great Depression, the loss of trust lingered, crimping stock market participation and forestalling any kind of rebound. Congress eventually created the Securities and Exchange Commission to protect investors and guard against fraud. An epidemic of dodgy transactions once again tested public faith in markets in the 1980s, especially after the prosecutions of junk-bond king Michael Milken and the late insider-trader Ivan Boesky, an inspiration for the Gordon Gekko character in the film Wall Street.
The actual prevalence of insider trading and other unethical behavior today is hard to quantify in real time because it happens in the shadows. But as the perception of bad behavior grows, it is incumbent on regulators and policymakers to send clear signals to the American public and international investors that they’re addressing the problem.
Under Chair Paul Atkins, the SEC claims it’s doing more with less, and that it can remain tough on the crimes that matter most without creating burdensome compliance hoops for companies to jump through. “Our goal should be to increase the cost of fraud and manipulation, not the cost of compliance itself,” Atkins said in remarks earlier this year.
Retail investors are counting on the protection. The proportion of families that directly hold stocks is near a record, and retail traders’ daily net turnover of individual US equities soared to around $750 million a day in 2025, from less than $60 million in 2019. That level of participation won’t be sustainable if our market integrity is allowed to deteriorate. Traders surveyed by Bloomberg News already report declining confidence in the workings of the oil market. Investors will ultimately retrench and the cost of capital will increase.
These effects can be especially catastrophic for the working class, who might be scared away from investing for retirement or their children’s educations. This at a time when Americans’ trust in their institutions is already extraordinarily low.
The authorities are catching some of the naughty behavior. A US Army soldier was charged with using classified information about the capture of Venezuela’s Nicolás Maduro to make more than $400,000 on Polymarket. And indictments unsealed this month describe an alleged insider-trading ring involving attorneys from some of the top mergers and acquisitions firms in the country.
But we only learned of a Commodity Futures Trading Commission probe into suspicious oil trades after a letter from Democratic Senators Elizabeth Warren of Massachusetts and Sheldon Whitehouse of Rhode Island encouraged the agency to open such a probe. For all the insider trading cases that have made headlines, the real risk is that they’re just the tip of a much larger iceberg that our downsized regulatory authorities aren’t fully addressing.
The SEC took the fewest enforcement actions in a decade during the last fiscal year, and it recently saw enforcement director Margaret Ryan quit after just six months. It dismissed or paused at least a dozen cases against crypto companies, and it dropped civil enforcement actions against three businessmen who received pardons or commuted sentences from the president.
The CFTC, which generally has responsibility over the new prediction markets, also saw less enforcement activity versus the prior year. The New York Times reported over the weekend that the CFTC’s then-acting chair Caroline Pham and her senior counsel helped prediction markets get their way with regulators, and that some officials who raised concerns were put on leave.
Less active regulators send a signal to bad actors that the odds of crime paying off are improving. History has shown that individuals consumed by worry about getting cheated are less willing to invest. In one study of the record-breaking Bernard Madoff Ponzi scheme, the authors found that investors more exposed to the fraud were more likely to pull their money from investment advisers and put it in cash. Another study found the larger the staff and budget that the SEC throws at the problem of enforcement, the less brazen the pre-event price run-ups ahead of major corporate news announcements such as earnings and M&A.
Questions about how government officials conduct themselves have also grown. Trump’s investment advisers placed more than 3,700 trades in the first quarter, including many that involved companies that have dealings with the administration. And although the US Senate has banned itself from prediction market participation, the House has been . Efforts to bar members of Congress from stock trading have languished for years.
It’s still far from clear when an event contract trade rises to the level of illegal insider trading under existing law — to prosecute successfully, you sometimes need something as egregious as the misappropriation of classified military intelligence, as in the Venezuela case. And while the trading volumes in prediction markets are still small compared to stocks and bonds, the markets are growing by leaps and bounds, and the signals they generate are exerting vast influence on traditional markets.
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