Polymarket investigation into dozens of suspicious bets related to the US elections

As the US midterm elections approach, prediction markets draw attention to the risks related to confidential information. Polymarket has opened dozens of investigations into suspicious bets, notably for suspicions of insider trading and manipulation. According to NPR, its monitoring team receives hundreds of alerts every day. At least two cases have gone to US authorities as the platform strengthens its controls ahead of the November 3 vote.

Polymarket strengthens monitoring of election bets

Polymarket reviews dozens of bets related to the US midterm elections in the United States, according to statements by Shana Bautista reported by NPR. As a global intelligence and investigations leader, she heads a team of 16 people responsible for spotting suspicious activities. The company aims notably to identify users who might exploit non-public information to make money. These investigations occur ahead of the vote scheduled for November 3.

Bautista joined Polymarket in June after working at the FBI and in cryptocurrency analysis. Since her arrival, she has overseen controls on election markets. Her team uses a new monitoring system to spot unusual behaviors and assess manipulation risks. According to NPR, at least two cases from these investigations have been sent to the Commodity Futures Trading Commission (CFTC), the US authority responsible notably for monitoring certain financial markets.

The leader also recalled that using confidential information violates the terms of use of the two platforms operated by the company. She emphasized that such practices may also break the law. Therefore, her team intends to identify users seeking to profit from information the public does not have access to. However, the company has not disclosed the details of the examined cases nor any follow-up actions for each case.

A system generating hundreds of alerts per day

To spot suspicious operations, Polymarket gathers several categories of data. Its system notably analyzes social media posts, Federal Election Commission (FEC) statements, information from cryptocurrency firms, and data from its banking partners. It also relies on statistical models to spot behaviors that deserve in-depth examination. When several internal indicators converge, the system triggers an alert to Bautista.

This method generates hundreds of notifications daily, according to the investigations leader. Nevertheless, an alert does not automatically mean a user committed an offense. Rather, it allows the team to pinpoint activity needing further checks. Bautista refuses to reveal the precise criteria used by the system to preserve its effectiveness and prevent users from bypassing controls.

Monitoring covers two distinct environments. The American platform requires identity verification, while Polymarket International enables transactions in cryptocurrencies without systematic public user identification. This difference potentially complicates operation tracking, but Bautista believes anonymity remains limited in cases examined by her team. She states investigators have always been able to identify, at least potentially, the persons involved in the cases they work on.

Election markets exposed to manipulation risk

Bets on elections present particular risks, as available information may influence participants’ expectations. Rajiv Sethi, economics professor at Barnard College, explains to NPR that these markets may produce self-fulfilling effects. Indeed, the perception of favorable momentum for a candidate can change participant behaviors and expectations. Price movements may then reinforce an already perceived trend, without necessarily reflecting solely a candidate’s real chances.

Suspicions of insider trading on these markets do not date from this investigation. In May, several campaign team members reported to NPR earning thousands of dollars by betting on their own candidates. They allegedly used confidential information concerning polls not yet published. A former CFTC lawyer explained that such operations could violate the law, depending on the circumstances.

This situation also concerns Kalshi, Polymarket’s main competitor. In May, the company launched a system based on FEC rules to prevent campaign team members from betting on elections. In June, it added job reporting obligations for certain high-risk markets and a risk assessment mechanism. Kalshi then stated it opened over 150 investigations since the beginning of the year and sent more than 20 cases to law enforcement. However, a campaign team member told NPR they found a way to circumvent the restrictions.

Cooperation with authorities at the core of controls

In April, Polymarket teamed up with Chainalysis, a company specializing in blockchain analysis, to develop tools intended to strengthen market integrity. This collaboration followed a few days after the indictment of an active-duty American soldier. He allegedly used classified information on an operation targeting the capture of Nicolás Maduro to place bets on the platform. Reported details indicate he wagered more than $33,000 and won nearly $410,000.

The soldier pleaded not guilty. Polymarket stated it detected suspicious transactions and alerted authorities before his arrest. This case highlighted the risks of using sensitive information on prediction markets. It also illustrates the importance of blockchain analysis tools to examine fund movements and track the individuals behind certain operations.

The role of authorities remains a significant issue. According to NPR, the CFTC has done little so far to control prediction markets, leaving much of the monitoring to the operators themselves. In September, agency employees warned that contracts based on mention of specific words or a person’s participation in an event could facilitate manipulations. This warning came three weeks after a fine targeting a teleprompter operator who bet on speeches he had already read.

The coming weeks will allow assessment of Polymarket’s capacity to detect suspicious operations during the election period. The number of alerts, ongoing investigations, and possible reports to authorities will give insight into the effectiveness of its controls. As the November 3 vote approaches, the challenge will be to limit the exploitation of confidential information while preserving the reliability of prediction markets.

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