Polymarket insider trading case challenges CFTC swap definition in U.S.

Traders Union
All News
Financial News
Polymarket swap case

Highlights

Spagnuolo's defense filed a motion in U.S. District Court arguing that Polymarket wagers on Google search rankings are not swaps under the Commodity Exchange Act.
Prosecutors allege Spagnuolo used confidential Google information to earn over $1 million on Polymarket's international, CFTC-unregulated platform, making substantial wagers under the alias 'AlphaRaccoon'.
Recent contradictory federal appeals rulings on Kalshi and Nevada prediction market contracts increase the likelihood that the Supreme Court will ultimately decide the scope of CFTC oversight for event contracts.

Dismissal bid targets legal basis of charges

As reported by Financial Times, citing Wired, a motion filed earlier this week in U.S. District Court for the Southern District of New York argues that the alleged Polymarket transactions fall outside the Commodity Exchange Act because they were bets on Google search rankings, not financial instruments covered by federal commodities law.

Spagnuolo, an Italian citizen living in Switzerland, is charged with using confidential Google information to make more than $1 million on Polymarket’s international platform, which is separate from the company’s CFTC-regulated business and blocked in the U.S. Prosecutors allege he used Google’s internal software tools under the alias “AlphaRaccoon” to place substantial wagers on who users searched for most in 2025.

The defense does not focus on denying that internal information was used. Instead, it argues the wagers were not “swaps” because they were not tied to any meaningful financial, economic or commercial consequence, and did not serve hedging or price discovery functions typically associated with derivatives.

Lawyers for Spagnuolo also contend that Google’s Year in Search data had no direct commercial value to Google in this context, and that any financial consequence existed only for Polymarket users who chose to bet on the contracts. On that basis, they argue the indictment stretches the statutory definition of a swap too far and could make virtually any wager subject to federal commodities rules.

Broader market implications for prediction platforms

The dispute goes beyond one criminal case because the classification of prediction market event contracts remains central to a wider fight between U.S. states, the CFTC and platforms such as Polymarket and Kalshi. Prediction markets maintain that their event contracts are derivatives subject to federal oversight, while more than a dozen states have challenged them as unlawful sports gambling operations.

The CFTC, now chaired by Trump administration appointee Michael Selig, has pushed back against state efforts and has previously argued in similar litigation that prediction market contracts fit within the evolving definition of derivatives. The regulator declined to comment on the Spagnuolo case, while Polymarket says it is committed to accurate, fair and transparent markets and to working with regulators and law enforcement.

The legal debate is also advancing through the courts. In a recent federal appeals ruling on Friday involving Kalshi and Nevada, judges found that sports event contracts are likely not swaps under the Commodity Exchange Act, creating a split with an earlier appeals court ruling from April.

That divergence raises the prospect that the Supreme Court may ultimately decide whether and when prediction market wagers qualify as swaps in the U.S. The outcome could shape how operators structure contracts, how regulators divide oversight, and whether state gambling restrictions continue to apply across the sector.

Our earlier coverage on scrutiny of prediction markets focused on Senator Elizabeth Warren’s call for transparency around a closed-door meeting between Donald Trump Jr. and Republican state attorneys general. The piece highlighted growing state-level concerns about consumer protection and alleged predatory practices, adding political pressure as regulators and policymakers debate how these platforms should be overseen.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.