Early this year when the US invaded Venezuela and captured Venezuelan leader Nicolás Maduro there was a series of well timed trades on the Polymarket prediction market. “Predictios” purchases of $32,000 were placed from December 27 to January 2, just before the US military effort.
Was it insider trading?
No. Polymarket trades are not securities. They are considered commodities.
Was it insider trading under the CFTC rules? The insider trading rules at the CFTC work a little different. End users make some of the general commodities trades. They have insider knowledge and must be able to trade.
Let’s go back to the movie Trading Places, with Eddie Murphy and Dan Aykroyd. [Spoiler Alert] In the movie, Murphy and Aykroyd steal the government reports on the orange harvest predictions and make FU money. In 2011, under then-CFTC Chairman Gary Gensler, the CFTC as part of Dodd-Frank passed Rule 180.1 with the purpose to prevent insider trading. It’s seldomly used.
There is broad consensus that it prohibits trading on stolen information or information that is subject to specific confidentiality requirements, or stolen government information (As in Trading Places).
Gannon Ken Van Dyke, a special forces soldier, was charged with unlawful use of confidential government information for personal gain, theft of nonpublic government information, commodities fraud, wire fraud, and making an unlawful monetary transaction.
As a government employee he falls squarely into the lap of the Eddie Murphy’s exploits. He also apparently signed non-disclosure agreements regarding the classified information which would make the trades based on a breach.
This could be an interesting test of the prosecution of insider trading in the commodities markets. I doubt it will go very far to test the constraints of these relatively untested laws.
Sources:
- A $400,000 profit on Maduro’s capture raises insider trading questions on Polymarket by Bobby Allyn for NPR
- Soldier Charged With Using Classified Data to Bet on Maduro By Patricia Hurtado and Bob Van Voris
- U.S. Soldier Charged With Using Classified Information To Profit From Prediction Market Bets DOJ Press Release
- The other life of US soldier accused of betting on Maduro’s removal by Sheila Flynn and Nardine Saad for BBC
- The ‘Eddie Murphy Rule’ Earns Its Moniker: The CFTC Brings a Classic Insider Trading Case
- Planet Money Episode 471: The Eddie Murphy Rule
- CFTC Rule 180.1
- Polymarket Insider Trading Charges Illustrate DOJ and CFTC Prediction Markets Enforcement Strategy