DOJ and CFTC Run New Routes to Pursue Insider Trading Case on Polymarket

On May 27, 2026, the Department of Justice (DOJ) brought criminal allegations, and the Commodity Futures Trading Commission (CFTC) brought civil allegations, against Michele Spagnuolo, an Italian citizen residing in Switzerland. The allegations are that he misappropriated material nonpublic information (MNPI) to defraud Google, for whom he worked as a software engineer.

Spagnuolo bought at least 23 “Yes” or “No” listings on Polymarket as to who would be in the top trending Google searches for 2025, with near-perfect accuracy. As alleged, Spagnuolo breached his duty of trust and confidentiality to Google by using MNPI to purchase the listings. After Google publicized the results, Spagnuolo profited more than $1.2 million, raising speculation of foul play.

Polymarket, a so-called prediction market platform whose U.S. affiliate, Polymarket US, is registered with the CFTC as a designated contract market, enables parties to stake their money on nearly anything. Whereas the DOJ describes this process as placing “bets,” the CFTC characterizes it as “trading.” The listing prices are based on the probability that the market believes an event, or the outcome of an event, will occur. For correct guesses or “predictions,” one dollar is paid out per share purchased.

Because of Spagnuolo’s purported deception toward Google, the DOJ charged him with willfully committing criminal commodities fraud, wire fraud, and money laundering, while the CFTC alleged that he committed civil commodities fraud. But the allegations, particularly for commodities fraud, depend on novel interpretations of law that had never previously been called on the field until a month prior, when the DOJ and CFTC had brought allegations against a U.S. Army member for using classified nonpublic information to profit from the capture of former Venezuelan President Nicolás Maduro.

Whereas wire fraud applies regardless of the type of financial instrument used, commodities fraud (whether criminal or civil) requires that a “swap,” “future,” or “option” be in the playbook. Swaps are broadly defined and include transactions that provide for any payment that is dependent on the occurrence or nonoccurrence of an event associated with a commercial consequence. According to the CFTC, the “event” for purposes of this case is the 2025 “Year in Search” list, and the “commercial consequence” is the effect this ranking has on Google’s profitability. On other playing fields, federal courts have primarily addressed, and reached inconsistent conclusions on, whether sports-related listings are swaps subject to the CFTC’s jurisdiction.

But the DOJ and CFTC are not the only playmakers with authority to bring charges based on abusive use of MNPI. To the extent that any contract is based on the occurrence or nonoccurrence of an event relating to an issuer of a security or issuers of securities in a narrow-based index, provided that the event directly affects the financia statements, condition, or obligations of the issuer, the SEC may engage in a parallel call on the field. In this connection, on June 18, 2026, the SEC and CFTC issued a joint request for public comment on the interpretation and treatment of security-based swaps. See “SEC and CFTC Consider Status of Event Contracts and Other Innovative Products.”

So long as prediction markets continue to operate in the United States, allegations of insider trading like those against Spagnuolo will not be the last. The ability to trade on MNPI is easier than ever. To keep up with technological changes, issuers of securities, financial intermediaries, and any other party with access to MNPI should update their policies, as necessary, to protect against the risk of trading on MNPI. Although insider trading has always been a risk, advancement in technology and developing new markets necessitate changes to the industry playbook.

Some Additional Context

State gaming officials are individually engaged in contentious nationwide litigation against Polymarket for allegedly operating an unlicensed gaming business. These officials have argued that the listings are wagers subject to state law and have rejected Polymarket’s characterization of them as “swaps” subject to the CFTC’s exclusive jurisdiction. Remarkably, the CFTC has sued many of the same state gaming officials, seeking injunctive relief and echoing Polymarket’s argument.