CFTC Investigation of Polymarket Broadens Compliance Questions for Prediction Markets

According to a new analysis by Anderson Insights, the regulator’s inquiry reaches into the marketing, consumer protection and compliance practices surrounding those products. The reported probe comes more than four years after the CFTC settled an enforcement action against Polymarket, then operating as Blockratize Inc., over unregistered event-based binary options contracts. In that 2022 action, the agency imposed a $1.4 million civil penalty, ordered the company to wind down noncompliant markets and directed it to cease violating the Commodity Exchange Act. According to Anderson Insights, the agency’s latest scrutiny appears considerably broader. It follows recent reports that the CFTC has opened a new investigation into Polymarket and coincides with a June 25 letter from Sens. John Curtis (R-Utah) and Adam Schiff (D-Calif.) urging CFTC Chairman Michael Selig to investigate allegations that the company used simulated trading websites, staged transactions and undisclosed paid influencers to promote prediction-market activity associated with its offshore platform. In their letter, the senators wrote that if the reported conduct occurred, “these allegations are deeply troubling and demand immediate scrutiny” by the CFTC. They also questioned whether prediction markets should continue to be distinguished from gambling when social media creators allegedly portray them as “free money.” The lawmakers argued that the allegations extend beyond one company. They warned that prediction-market operators “should not be permitted to avoid” consumer protection obligations that apply to traditional gaming operators simply by characterizing their offerings as federally regulated derivatives. Regulatory Tension Around Prediction Markets Per Anderson, the case has implications across the prediction-market industry because it raises questions about how operators acquire customers, supervise third-party marketers and present their products to retail users. Among the issues identified in both the analysis and the senators’ letter are whether the CFTC is investigating the reported conduct, what steps the agency has taken since its 2022 enforcement action to prevent Polymarket from targeting U.S. users through offshore platforms, whether simulated trading demonstrations require clear disclosure, and what consumer protection standards should govern advertising, age verification, responsible gaming tools, affiliate marketing and influencer disclosures. The Anderson analysis argues that those questions illustrate a growing regulatory tension. Although prediction markets may be structured as derivatives under federal commodities law, many retail customers experience them as wagers on elections, sports, entertainment, litigation or other real-world events. That distinction becomes increasingly blurred when products are promoted through social media personalities, videos depicting large winnings or marketing suggesting easy profits. The analysis says regulators now appear increasingly willing to treat customer acquisition and promotional practices as integral parts of a regulated financial product rather than separate marketing functions. It points to CFTC Rule 180.1, which broadly prohibits manipulative or deceptive conduct in connection with commodity interests, while noting that Federal Trade Commission endorsement principles requiring disclosure of paid influencer relationships may also become relevant to prediction-market operators. The reported investigation also arrives as the CFTC is separately considering broader rules governing prediction markets. In June, the commission proposed revisions to its public-interest review process for event contracts, expanding on existing restrictions involving contracts tied to terrorism, war, unlawful activity and other prohibited subjects. Anderson Insights says that rulemaking demonstrates the commission is still defining the permissible boundaries of event-contract markets. For prediction market companies, the analysis recommends strengthening compliance controls well beyond product design. Operators should be prepared to document how they block prohibited U.S. users, supervise affiliates and influencers, review promotional materials, clearly identify simulated trading demonstrations and monitor offshore contractors involved in marketing. Claims regarding profitability, liquidity or potential winnings should be accurate and appropriately qualified, while influencer relationships should be governed by written agreements and disclosure requirements.