The Feds Are Coming for Prediction Markets 

Two powerful figures in Washington sent that signal in recent weeks. On January 29, Commodity Futures Trading Commission Chairman Michael Selig laid out a four-part plan to bring new rules to the prediction market space. Then, on February 5, Jay Clayton, the U.S. Attorney for the Southern District of New York — one of the most prominent federal prosecutors in the country — said he expects to bring fraud cases tied to prediction market trading.

A new analysis from law firm Akin Gump Strauss Hauer & Feld breaks down what these moves mean. The firm notes that prediction markets occupy an unusual regulatory gray zone. Unlike traditional sports betting, which states oversee, prediction markets are regulated at the federal level by the CFTC. But despite the industry’s rapid growth and “several high-profile instances of suspected insider trading,” the CFTC and criminal authorities have yet to bring a single case alleging fraud or manipulation.

That looks poised to change. Chairman Selig’s plan directs CFTC staff to begin writing new rules specifically for event contracts — the industry term for the yes-or-no bets that prediction markets offer. He also wants to scrap a 2024 proposal that would have banned politics and sports contracts outright, signaling a shift toward regulation rather than prohibition. And in a February 12 interview, Selig said the agency has been working directly with prediction market platforms and sports leagues to stay ahead of insider trading risks.

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On the criminal side, the threat is even more concrete. As Akin Gump explains, prosecutions could mirror recent cases out of the Eastern District of New York, where MLB and NBA players were charged with wire fraud for placing bets using inside information. Because prediction market contracts fall under CFTC jurisdiction, prosecutors could also add charges under the Commodity Exchange Act — a federal law that carries serious penalties.

Related: SEC Chair Says Agency May Get Involved in Regulating Prediction Markets

As the firm puts it in its compliance guidance: “To minimize the risk of government scrutiny relating to prediction market trading, market participants should ensure they have clear policies and procedures in place to prevent trading in prediction markets on the basis of inside information, including surveilling for suspicious activity where appropriate.”

That advice matters for a growing universe of companies. New entrants are flooding the space, including traditional sports betting platforms looking to expand into event contracts. For these firms, the message from Washington is straightforward: the rules are coming, and enforcement won’t be far behind.

Still, significant questions remain. There is ongoing debate about which event contracts actually fall under the CFTC’s authority. Sports-related contracts, for example, sit in a legal gray area. The new rules Selig has called for could clarify those boundaries, but drafting and finalizing regulations takes time.

In the meantime, prediction market operators and traders should expect more attention from both regulators and prosecutors. The CFTC’s enforcement division was notably quiet in 2025, filing just 11 actions compared to 58 in 2024. But with the chairman now publicly focused on the space and a top federal prosecutor promising cases, that quiet period appears to be ending.

The prediction market boom is not slowing down. The question now is whether regulation can keep up.