by Daniel Covington
Background
During the end of April, several news outlets reported on yet another story of insider trading. This time it was something more remarkable than usual. A man named Gannon Ken Van Dyke involved with Operation Absolute Resolve, otherwise known as the raid on Venezuela’s leader Nicolas Maduro, allegedly “bet a total of approximately $33,034” on the Maduro operation on the prediction market platform Polymarket, federal authorities said. Those authorities would go on to say that Van Dyke “ultimately [made] more than $409,000 as a result of the bets placed on the U.S. operation” (NBC). Authorities said he “participated in the planning and execution of the U.S. military operation to capture Nicolás Maduro.” (NBC). Van Dyke’s plan was flawless on a financial forefront. Unfortunately, the tech front his plan was full of holes, furthermore “federal authorities say that on Jan. 6, three days after the Maduro raid, Van Dyke ‘asked Polymarket to delete his Polymarket account’, falsely claiming that he had lost access to the email address” (NBC). His email address just happened to be his personal email, which included his name, phone number, and address. Little did Van Dyke know but Polymarket, in an effort to demonstrate their ability to self-regulate their platforms, had started looking into his account. This trade seemed a little too perfect even by their standards. Even though Van Dyke had already contacted Polymarket to change it, this did nothing but confirm their theory. What is most notable is that Van Dyke is one of the first to ever be caught red handed using these betting platforms for insider trading, and subsequently the first one having to go to court because of it. Ironically, that court room is the same one Maduro is being tried in as well.
How did Polymarket and Kalshi even come into existence?
Kalshi was the first web-based prediction market, founded in 2018, with the founders claiming they wanted to create a sort of “stock market for events”. Two years later, Kalshi became the first legal “designated contract market” (DCM) licensed by the Commodity Futures Trading Commission (CFTC). This allowed them to be able to operate in the US instead of in an offshore setting. They officially launched in July 2021, and over the next 3 years they had an uphill battle against people claiming that betting on an election was “gaming” and bad for the public interest. Kalshi ended up winning a landmark case because the CFTC did not have the power to stop them; the court’s opinion was they were not technically “gaming”. This paved the way for people to bet on the 2024 presidential election.
Polymarket, founded in 2020 by Shayne Coplan, had a very different start. Polymarket is built on a blockchain and allows users to use crypto, this did not have permission of any type from any part of the United States Government, in part because the “market” was not originally based in the US. After the CFTC found out about the illegal operation, there were fines and a battle between the Government and Polymarket ensued. Eventually, due to the settlement with the CFTC, Polymarket had to block all US users, although this isn’t a problem for anyone who can download a Virtual Private Network (VPN). A VPN is a software where you can hide your device’s location, and there are many free options. Even those who are moderately motivated could gain access to Polymarket in just minutes at potentially no cost. Still, Polymarket in the US was essentially nonexistent. Years later, after buying a company that already had a license in late 2025, the CFTC was officially granted a license and Polymarket launched a new “Compliant” US based Platform.
What does this case signify for the betting markets?
Van Dyke’s case of being the first person caught redhanded committing insider trading and then prosecuted signifies that there is a battle between self regulation in private industry and government regulation. Betting markets are trying to regulate themselves, but the government is continuously trying to crack down. With insider trading already rampant in Congress and potential issues having been raised asking if the CFTC can even handle the capacity of regulating this new industry, this will not be an easy feat. As discussed in an earlier section, there has been quite a legal battle for these platforms to even exist. The CFTC could have a much harder time regulating Polymarket because of its Polygon solution, a system based on a type of digital currency. This could make it harder to track who did what if they use fake information when setting up the account, something that Van Dyke did not do.
Trump on prediction markets: “The whole world, unfortunately, has become a casino”
Where does this leave society?
This is a very hard question to answer. We know there has been seemingly an ever increasing amount of cheating and/or corruption in betting. It is seen in Van Dyke but it is also being seen all over the sports arena, where not only are fans betting, but now coaches and players are too. In one case, basketball player Terry “Rozier, who was arrested Thursday morning at a hotel in Orlando, Florida, is accused of participating in an illegal sports betting scheme using insider NBA information. As part of the scheme, gamblers use nonpublic information to bet on at least seven NBA games between March 2023 and March 2024 involving the Charlotte Hornets, Orlando Magic, Trail Blazers, Los Angeles Lakers and Toronto Raptors, according to the indictment. In three of the seven games, players intentionally removed themselves from contests to benefit the gamblers’ bets, according to the indictment” (ESPN). This destroys the credibility of a team and the game as a whole. Athletes are not only facing more pressure because of sports betting, they are being targeted and blamed for bad bets. In an interview, CNBC published the former New York Knicks star Carmelo Anthony said the betting culture “mentally affects” players. “They may say they don’t care … but they care about it, because it affects them,” he later says that when you bet on players and you don’t win it can affect how you see the player “Just because you bet on 25 points, and I got 22 points, now you look at me differently. Now I’m losing my skill set” (CNBC). When people lose a bet on a player, it has been seen that the fans can lash out at them during games which affects the mental health of the players.
Knowing all of this, we as a society never voted for these betting markets. In both cases, Kalshi and Polymarket benefited from a legal decision handed down by the court, with some seeing it as a legal loophole. As a society we need to decide if this industry is one that is a net positive or negative for our society. Given all the corruption and effects on all industries, it makes one wonder if this whole world becoming a casino is really a good idea?
Pictures from Wall Street Journal and The Atlantic respectively