Prediction Market Case Tests Novel Insider Trading Theory

Litigation attorney Alexander Blanchard authored a Law360 article analyzing a new federal wire fraud theory in the first insider trading prosecution involving prediction markets. The case centers on allegations that a U.S. Army master sergeant used classified information about the military operation to capture Venezuelan President Nicolás Maduro to make profitable trades on Polymarket, and prosecutors argue money obtained from trading counterparties can satisfy the law's money-or-property requirement. Alexander examines how this counterparty-money theory differs from the framework traditionally applied in insider trading cases, which focuses on the misappropriated information as the object of the fraud, and assesses its tension with U.S. Supreme Court and U.S. Court of Appeals for the Second Circuit precedent concerning deception, property interests and the identity of the defrauded party. He notes that acceptance of the theory could reshape future prosecutions involving prediction markets and confidential information that lacks commercial value to its source, while its viability may ultimately require consideration by the Second Circuit.

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