Polymarket reviews dozens of midterm election bets for possible abuse

What happened

Polymarket has investigated dozens of wagers on its U.S. midterm election markets for possible insider trading or manipulation, according to Shana Bautista, the company's head of global intelligence and investigations. At least two of those investigations were referred to the Commodity Futures Trading Commission, NPR reported, citing a person familiar with the probes. Decrypt and Bitcoin.com News both reported the details on Oct. 27.

Bautista, a former FBI official and crypto analyst who joined Polymarket in June, leads a 16-person team that is policing election bets with a new surveillance system ahead of the Nov. 3 vote. The team monitors both Polymarket's U.S.-regulated exchange, which requires users to verify their identities, and Polymarket International, where users can trade anonymously using crypto. Bautista told NPR that crypto trades are rarely fully anonymous and that her team has been able to potentially identify people in the cases it has worked.

The surveillance system draws on social media, Federal Election Commission filings, crypto companies, banking partners and statistical models, and it alerts Bautista when a user triggers enough internal red flags. She said the team receives hundreds of alerts a day and declined to share the specific criteria, citing system security. Bitcoin.com News reported that warning signs include concentrated trading bursts, similar behavior across multiple accounts and shared device identifiers, and that findings from earlier cases are fed back into the system.

Why it matters

Election markets are especially exposed to manipulation, Barnard College economics professor Rajiv Sethi told NPR, because they can become a self-fulfilling prophecy: perceptions of a candidate's momentum can influence the result. The reviews also test whether prediction platforms can effectively police political insiders as trading volume grows. NPR reported that the CFTC has done little to police prediction markets, largely leaving the work to the companies. The referrals put at least two cases directly before the federal regulator.

What the data shows

Bitcoin.com News reported that Polymarket's election marketplace encompasses 506 individual markets. By mid-October, combined midterm-related trading across Polymarket and Kalshi had reportedly exceeded $220 million. As of Tuesday, Oct. 27, the House control market had attracted $24 million in volume, with Republicans assigned a 9% chance of retaining control, while the Senate market had recorded $9 million, with Republican victory odds at 35%. Polymarket's balance-of-power contracts priced a Democratic sweep of both chambers at 65%, a Republican Senate and Democratic House at 27%, and a Republican sweep at 8%.

Individual Senate contests also drew attention. Texas led the listed battlegrounds with $7 million in volume, as Democrat James Talarico held a 67% implied probability against Republican Ken Paxton's 34%, according to Bitcoin.com News. Michigan and Maine each had $3 million, with Abdul El-Sayed leading Mike Rogers 69% to 32% in Michigan and Troy Jackson leading incumbent Susan Collins 62% to 39% in Maine. Ohio's Sherrod Brown stood at 70% against Jon Husted, and Alaska's Mary Peltola at 75% against Dan Sullivan, with both markets recording about $2 million in volume. In gubernatorial markets, California's Xavier Becerra led at 97%, Florida's Byron Donalds at 80% and Texas Gov. Greg Abbott at 69%. California's proposed billionaire wealth tax had generated $4 million in trading volume, with rejection favored at 77%.

Background

Concern about election insider trading drew attention in May, when campaign staffers told NPR they had made thousands betting on their own candidates using tips about unreleased polls. One staffer said it was almost foolish not to bet before the information became public. Jeff Le Riche, a former CFTC trial lawyer, told NPR that such trades could potentially violate the law. Kalshi, Polymarket's main rival, launched an FEC-based system in May to block campaign staffers from betting on elections, then added employment disclosures for high-risk markets and a risk-scoring framework in June. Kalshi said it had opened more than 150 investigations that year and referred more than 20 cases to law enforcement. One campaign staffer told NPR they had found a way around Kalshi's block.

Polymarket partnered with blockchain analytics firm Chainalysis on market surveillance tools in April, days after an active-duty U.S. Army soldier was charged with using classified information about the raid to capture Nicolás Maduro to bet on Polymarket. The soldier, who has pleaded not guilty, allegedly placed more than $33,000 in bets and won nearly $410,000. Polymarket said it detected the activity and reported it to authorities before the arrest. Bitcoin.com News reported that Polymarket has previously referred more than 100 cases involving various markets to law enforcement. In September, CFTC staff warned that mention markets, contracts on whether a named person says certain words or attends an event, should be presumed readily susceptible to manipulation. The advisory came three weeks after the agency fined a teleprompter operator who traded on speeches he had already read.

What to watch

With Election Day approaching, Polymarket faces two simultaneous tests, Bitcoin.com News noted: its traders are pricing the country's political future while its investigators try to determine whether everyone influencing those prices is following the rules. The outcome of the two CFTC referrals, and whether more cases are sent to regulators, will be watched as a measure of how prediction markets handle sensitive political information. Kalshi's experience with a campaign staffer who found a way around its block shows that compliance systems can be circumvented. Bautista warned that people with information they have a duty to protect should not trade on it, because the activity violates the platforms' terms and the law and her team will find them.

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