From Trading Places to War Markets: How Insider Trading Slipped Into Prediction Platforms

In the 1983 comedy classic Trading Places, two wealthy brothers orchestrate a scheme to rig the commodities market by obtaining a secret government crop report. Eddie Murphy’s character exploits this stolen information to trade ahead of the market and walk away with a fortune. At the time, audiences saw it as a brazen act of corruption—clearly illegal, right? Well, not exactly.

“People were surprised to learn that that wasn’t a crime,” said Peter Sanchez Guarda, who spent 22 years at the Commodity Futures Trading Commission before leaving in late 2024 to launch Turnkey Family Office.

The loophole that the film exposed eventually forced Washington’s hand. In the aftermath of the 2008 financial crisis, Congress amended the Commodity Exchange Act to explicitly prohibit trading on misappropriated government information. On Capitol Hill, the provision earned an informal nickname: the “Eddie Murphy Rule.” The CFTC later codified this authority in 17 CFR §180.1, a sweeping anti-fraud provision modeled closely on the SEC’s Rule 10b-5.

Four decades after Trading Places, the irony is striking. The very conduct that once slipped through regulatory cracks has resurfaced in a new venue. It’s no longer confined to Wall Street trading desks or the Chicago Mercantile Exchange. Instead, it’s playing out on prediction market platforms where users wager on everything from halftime show set lists to the outbreak of armed conflict.

And this time, the watchdogs may be even further behind.

War Becomes a Tradeable Signal on Prediction Platforms

Prediction markets were once dismissed as quirky experiments—digital oddities where people could bet on election outcomes or award shows. Recently, they’ve ventured into darker territory. Contracts now track flashpoints involving Iran, Israel, Venezuela, and Ukraine. When whispers begin about an airstrike or troop movement, prices can swing dramatically before any official statement arrives.

“The other sort of legal principle that underpins this is called the misappropriation theory,” Sanchez Guarda explained, “where information that belongs to your employer or comes to you as a result of your employment, you get access to, and you trade on that. And you have no right to use that because it came to you through your job.”

One episode involving betting tied to Iran drew particular scrutiny after contracts shifted sharply ahead of real-world events. Similar questions have followed markets linked to Israeli military operations. The suspicion is whether someone with advanced knowledge may have acted before the public caught up.

To Sanchez Guarda, that’s where the traditional insider trading framework starts to wobble.

“In securities cases, you know who the usual suspects are,” he told ReadWrite. “It’s the accountant, the lawyer, a few people inside the company, maybe the financial printer. You can round them up.”

Public companies have boundaries. There are corporate officers, compliance departments, and audit trails. When something leaks, investigators can sketch a circle around a finite group.

However, prediction markets don’t come with that perimeter.

“If you’re betting on the halftime show, how many people have access to that information?” Sanchez Guarda asked. “You don’t even know who they are.”

Scale that problem up to geopolitics and it becomes almost unmanageable. Knowledge about a military action is rarely confined to a tidy executive suite. It can ripple outward through planners, reservists, contractors, diplomats, intelligence analysts, translators, and logistics teams. Even civilians loosely connected to operational planning may pick up fragments.

None of them owes a duty to a prediction market. Some may never have heard of the platform where a contract is trading. Still, information travels, and a quiet comment to a friend, a hint dropped in passing, or even a well-timed wager placed online may suddenly be gold dust.

By the time the public sees headlines, the market may already have moved.

The Enforcement Gap Over Insider Trading on Prediction Markets

Legally speaking, the prohibition falls under CFTC Rule 17 CFR §180.1, which bars the use of any manipulative or deceptive device in connection with a derivatives transaction, including trading on misappropriated nonpublic information. Courts can draw on decades of securities law to interpret it.

“So technically, this is illegal,” Sanchez Guarda said. “But it would be very difficult to police.”

The reason is structural. In equities markets, insider trading cases are built on well-worn tools. Regulators issue subpoenas, review email trails, examine brokerage accounts, and lean on corporate reporting requirements—there’s a roadmap.

Prediction markets, on the other hand, flip that script. They’re often built around single, novel events. There may be no historical baseline for what “normal” trading looks like.

“You wouldn’t know who they are,” Sanchez Guarda said. “It could be a backup dancer. It could be a security guard. It could be the neighbor of somebody like that.”

The Super Bowl became an unlikely test case. In one widely discussed incident, a trader created an account shortly before the game and placed a series of confident wagers on halftime show specifics, including song choices and order. Every bet hit. Then the account vanished.

On regulated venues such as Kalshi, there are at least some monitoring systems. On crypto-based platforms like Polymarket, oversight can be thinner or nonexistent.

Matt Bresler, CEO of Odditt, said suspicious trades often reveal themselves by their size and timing.

“Insider trades tend to stand out because they’re bigger than average and weirdly timed,” Bresler told ReadWrite, echoing Kalshi’s own public admissions. As Kalshi CEO Tarek Mansour has put it, “people don’t usually commit fraud for $25.”

Even so, the absence of precedent makes surveillance guesswork. Bresler posed a basic question: “How do you define normal trading behavior for a one-off market like whether Barron Trump will attend the State of the Union?”

The uncertainty spilled into public view when Andrew Ross Sorkin pressed Mansour on CNBC with a hypothetical. If a backup dancer knew a performer’s opening song and placed a bet, would that count as insider trading?

On Squawk Box, Kalshi CEO Tarek Mansour struggles to answer why a Bad Bunny dancer — who watched rehearsals — betting on the Halftime Show predictions markets would not be considered insider trading. Sports was estimated to be 90% of betting on Kalshi during the NFL season.

There was no tidy response, because the legal architecture was never built with that scenario in mind.

Beyond insider knowledge, there’s the possibility of direct manipulation. A contract might hinge on how many times a certain word appears in a speech. The speaker, in theory, could influence the outcome.

“If you’re betting on something like the number of times a word is used in a speech,” Sanchez Guarda said, “and I’m the one giving the speech, I can manipulate that.”

Platforms may prohibit such conduct in their terms of service, but detecting it before payout is another matter. “How would they catch that?” Sanchez Guarda asked.

Add crypto infrastructure to the mix and the trail can go cold fast, as some platforms rely on smart contracts and stress user anonymity.

“If you have the rails of an exchange run by smart contracts and crypto, and the selling point is anonymity, how would you find out who’s behind that?” Sanchez Guarda said.

And even if a regulator does identify misconduct, clawing back funds isn’t guaranteed.

“If the smart contract says you get paid, you get paid,” he said. “A legal judgment isn’t going to reverse that.”

All of this unfolds as the CFTC faces shrinking resources. At full staffing, the agency is only a fraction of the size of the SEC. Recently, it’s been operating with about 20% fewer employees than normal. Reporting has indicated that the CFTC’s Chicago office, long central to derivatives enforcement, has been reduced to a single enforcement attorney.

The scope of what the agency now oversees has ballooned to include contracts tied to sports, entertainment, politics, and armed conflict.

“How would you have enough people to police that?” Sanchez Guarda asked.

Prediction Markets Built on Asymmetric Information via Alleged Insider Trading

None of this means prediction markets lack value. Sanchez Guarda points back more than a century to Francis Galton and the idea known as the wisdom of crowds. When large groups make independent estimates, their collective judgment can be remarkably accurate.

Prediction markets attempt to formalize that principle by putting money on the line. Participants back their beliefs with cash, and prices aggregate those convictions into a probability.

The system works best when information is widely dispersed and roughly equal.

“If I’m the guy who put the beans in the jar, I know exactly how many there are,” Sanchez Guarda said. “My guess doesn’t carry any more weight than anyone else’s.”

That’s the catch. Markets magnify knowledge, but they also magnify advantage. When someone possesses concrete, nonpublic information, the playing field tilts sharply.

“The day before the invasion of Venezuela, a lot of people were betting on that,” he said. “Why did the odds change drastically? Because somebody knew something.”

In some cases, that early signal could be socially useful. A sudden price swing might hint at developments before official channels confirm them. At the same time, it can represent a quiet transfer of wealth from the uninformed to the informed.

Prediction markets are often pitched as groundbreaking financial technology, but Sanchez Guarda is less dazzled.

“What they’re trading is basically a binary option,” he said. “It’s new wine in old bottles.”

The wrapping may look modern, yet the underlying tensions are familiar. As platforms expand into ever more sensitive territory, we have to ask who gets to trade on what they know, and who is left holding the other side of the bet?

In Trading Places, the villains are exposed and the system snaps back into place. On today’s prediction platforms, trades can settle in seconds. Funds can move across borders just as quickly. By the time anyone asks hard questions, the profits may already be locked in.

The closing credits, at least for now, have yet to roll.

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