The CFTC Is Using AI to Catch Insider Traders on Polymarket — And It's Just Getting Started

For much of the past year, prediction markets looked less like a financial innovation and more like an open invitation to cheat. Traders on Polymarket racked up suspicious profits on geopolitical events — the Venezuela raid, Iran war contracts — with timing that strained credulity. The platform operates offshore on crypto rails, technically outside US jurisdiction, which left a lot of observers wondering whether anyone would ever actually do anything about it.

Turns out someone is paying attention. The Commodity Futures Trading Commission, the agency responsible for overseeing prediction markets, is now openly signalling that it's watching offshore platforms, including Polymarket, which is blocked to US users — though that hasn't stopped Americans from accessing it via VPNs. 'We're going to find them, and we're going to bring actions,' CFTC chairman Michael Selig told WIRED this week from the agency's Washington DC headquarters.

The CFTC is currently running lean, but Selig says it's hiring. In the meantime, the agency is doing what everyone does when they're short-staffed and drowning in data: throwing AI at the problem. The toolkit includes in-house surveillance systems, Chainalysis for tracing crypto transactions, and Nasdaq Smarts for detecting manipulation on centralised markets. 'When we feed it into AI, we get really great information,' Selig said. 'It can help us understand where we might want to investigate, or when we might need to send a subpoena to a trader.' Beyond that, the agency declined to get specific about which tools it uses.

Prediction market platforms have been rushing to look responsible. Kalshi, the US-based exchange and Polymarket's main domestic rival, has been loudly announcing suspensions and penalties for users caught manipulating markets. Polymarket, after considerable public pressure, announced a Chainalysis partnership in April as part of a broader cleanup effort — updating its market integrity rules and striking a separate Palantir deal for its US sports markets. The company didn't respond to requests for comment.

Conveniently for Chainalysis, both Polymarket and the CFTC are now paying customers. A company spokesperson explained that it provides both clients with the same underlying data, enriched with years of accumulated blockchain attribution work. Good for the bottom line, certainly.

The political pressure on the CFTC has been building for months. Connecticut senator Chris Murphy raised concerns in March that White House staffers may have been trading on war-related contracts with inside knowledge. A week into April, seven members of Congress formally asked the CFTC to investigate offshore war-event markets, arguing the agency had both the authority and the obligation to act. Selig has since told Congress the agency is working through 'hundreds, if not thousands' of insider trading tips.

On jurisdictional reach, Selig is measured but clear. The agency claims extraterritorial authority — the ability to enforce US law beyond its borders — but treats it as a case-by-case tool rather than a blanket power. 'We use it in extreme circumstances,' he said, with an eye on whether cases are winnable. Overreaching and losing in court could damage the agency's ability to pursue future enforcement. Selig pointed to the Dodd-Frank Act's expanded provisions on foreign swap activities affecting US markets as the legal basis. For cases that are weaker or more naturally in a foreign regulator's territory, the CFTC refers them on.

So far the only person actually charged is a US Army special forces soldier arrested on April 23rd for trades linked to the capture of Nicolas Maduro on Polymarket. Polymarket subsequently claimed it had already flagged the suspicious trades to authorities before the arrest.

One arrest. Hundreds of tips. Selig insists there's more coming, promising the agency will pursue wrongdoers regardless of 'how large or how small.' Whether that turns out to be a genuine enforcement wave or regulatory theatre remains to be seen.