DOJ and CFTC Bring New Insider Trading Cases in Prediction Markets

Federal authorities are aggressively targeting insider trading in prediction markets through coordinated enforcement actions that apply traditional securities fraud doctrine to a rapidly evolving asset class. On May 27, 2026, the U.S. Attorney's Office for the Southern District of New York and the Commodity Futures Trading Commission charged Michele Spagnuolo, a Google software engineer, with misappropriating confidential corporate information to trade event-based derivatives. The charges represent a significant escalation in regulatory attention to prediction markets and follow a similar case brought in April 2026 against U.S. Army soldier Gannon Ken Van Dyke for trading event contracts based on classified government information.

In the Spagnuolo matter, prosecutors allege the defendant accessed nonpublic data from Google's "Year in Search 2025" project—an internal ranking of the most searched individuals during the year—through company systems and subsequently traded event contracts predicated on this information. Over a multiweek period, Spagnuolo allegedly placed trades across numerous prediction market contracts with near-perfect accuracy, risking approximately $2.7 million and generating roughly $1.2 million in profits. The government further alleges Spagnuolo used cryptocurrency transfers to obscure the source and ownership of his proceeds. Charges include violations of Section 6(c)(1) of the Commodity Exchange Act and CFTC Regulation 180.1, as well as federal wire fraud and money laundering counts.

The coordinated enforcement effort targets misuse of material nonpublic information under a misappropriation theory, which holds that individuals who obtain confidential information through positions of trust may not exploit that information for personal trading advantage. Notably, the Spagnuolo case demonstrates that U.S. authorities will pursue offshore defendants; Spagnuolo allegedly resides in Switzerland and engaged in no U.S.-based trading activities or U.S. counterparties. The government proceeded by establishing jurisdiction through connections to U.S.-based blockchain infrastructure and broader effects on U.S. commerce.

The cases underscore a critical expansion of MNPI boundaries in event derivative markets. Information such as Google's search rankings would not typically constitute MNPI for traditional Alphabet securities trading but becomes economically material when tied to event contract pricing. As prediction markets proliferate and new contracts launch, the universe of potentially sensitive information expands accordingly. Institutional investors, public companies, and market participants face heightened compliance obligations, particularly concerning employee access controls, confidentiality policies, and personal trading surveillance. Firms should evaluate whether internal controls adequately address emerging prediction market instruments and establish policies that apply traditional insider trading principles to event-based derivatives.