Minutes before Donald Trump posted a market-moving message on Iran, trading volumes in S&P 500 futures and oil markets suddenly surged.
The spike was sharp, concentrated, and unusually well-timed. To outside observers, it raised an obvious question. Was this some kind of fluke, sharp analysis, or something closer to inside information?
In most contexts, that kind of pattern would trigger immediate scrutiny. In financial markets tied to geopolitical events, it often leads somewhere less definitive. Some kind of gray zone where suspicion is high but enforcement is uncertain.
The ambiguity points to a deep-seated issue. The rules governing modern markets were built for a world where information had clearer owners, clearer boundaries, and shorter paths between source and trade.
But today, those assumptions no longer hold.
For years, the rules around corruption in sport have felt straightforward. Fix a match and you are likely facing criminal charges.
In financial markets, the picture is far less clean. A trader can place a billion-dollar position moments before a major geopolitical announcement and still operate in a space where legality is uncertain, enforcement is inconsistent, and outcomes are rarely clear-cut.
The contrast is now drawing renewed attention. Unusual trading patterns tied to Trump-era Iran developments, combined with the surge of prediction markets like Kalshi and Polymarket, are forcing regulators and legal experts to confront a deeper issue. The system itself may not be designed to handle the kind of information these markets trade on.
A system built for simpler cases
In sports betting, enforcement works because the structure of wrongdoing is simple. Cases typically involve a small circle of participants and a short, traceable chain of evidence.
As Alan Heimlich, president of Heimlich Law, told ReadWrite: “Match fixing cases are successful because the trail of evidence is short. You have a fixer, a player and a betting account. Text messages, wire transfers and platform records tell the whole story.”
As a result, simplicity translates into speed. Prosecutors can often assemble and complete these cases within a year using standard financial forensics, making enforcement both efficient and predictable.
Recent cases reinforce that clarity, as we saw in 2025, more than 30 individuals, including professional athletes, were arrested in an FBI investigation into manipulated games linked to betting markets.
However, these kinds of contracts operate on an entirely different plane. Heimlich draws a sharp distinction: “Geopolitical insider trading… is a different animal. Information can go through briefings, leaked memos or casual conversations… and a case like that can drag on 3 to 5 years before falling apart at trial.”
This complexity exposes a deeper flaw as the legal system relies on tracing clear ownership and transmission of information, but in geopolitical contexts, those concepts begin to break down.
The ownership problem behind geopolitical insider trading
So, the question we ask ourselves is, who actually owns the information?
In sports, the answer is well established. The integrity of the game belongs to leagues and governing bodies, and manipulating outcomes violates both internal rules and criminal law.
In financial markets, insider trading law attempts to impose a similar structure. Heimlich explains the limitation to us: “Securities law attempts to do something like this with material nonpublic information, but ownership becomes murky quickly when the ‘information’ is a government policy decision.”
He goes further, arguing that trading on politically sensitive information sits in what is effectively a regulatory blind spot. Insider trading laws were designed for corporate boardrooms, not state-linked intelligence flows that move across institutions and individuals with no clear line of accountability.
Trading on state-linked information trades is in a regulatory blind spot. The SEC’s insider trading regulations were developed based on corporate board members and executives who have a fiduciary duty to shareholders… If the executive at a defense contractor takes a classified briefing and deals based on it, the theory of the prosecution is cleaner, but once you are down three degrees from that information to a hedge fund, the legal trail gets lost.
Alan Heimlich, Heimlich Law President
The problem intensifies as information travels. Once it passes through several intermediaries, the legal connection between source and trader becomes almost impossible to prove. What begins as a classified insight can quickly dissolve into market rumor, making enforcement impractical.
This helps explain why massive, well-timed trades can exist in a gray zone. Even when suspicion is high, the legal theory needed to prosecute often collapses under scrutiny.
Why geopolitical insider trading is so difficult to prove
Prediction markets push these tensions even further by blending elements of finance and gambling into a single product.
These platforms allow users to trade on real-world outcomes, from elections to military actions. In doing so, they create a marketplace where information advantage is not just expected but central to the product itself, which raises familiar concerns about insider trading, but without the legal clarity that exists in traditional securities markets.
If the trader is the person with the ability to create the outcome, inside information should be assumed.
Kevin Frankel, Partner at Benesch
Andrew Melville, head of research at crypto derivatives intelligence platform Block Scholes, points to emerging warning signs: “There are similar concerns around prediction markets, with distinctive patterns seen around events such as the abduction of Nicolas Maduro and markets around which dates the U.S. might strike Iran.”
Efforts to monitor these risks remain early-stage: “At present, there’s little mechanism to mitigate these risks… we’re creating a ‘Wallet Risk Index’ to spot problematic accounts,” he adds.
At the same time, distinguishing illicit trading from legitimate insight is inherently difficult. Stephen Piepgrass, partner at Troutman Pepper Locke, adds that even highly suspicious trades can have innocent explanations: “We have seen examples of trades that originally were thought to be based on insider knowledge but turned out to be simply the result of good research and analysis.”
Some traders have demonstrated that point dramatically, including cases where individuals have generated tens of millions in profits through accurate predictions without any proven access to inside information. Piepgrass refers to an instance where a French trader won $85 million predicting the outcome of the 2024 presidential election.
Still, regulators look for patterns that might draw attention to misuse. “Indicators… include when the account was opened, what types of other trades the account participated in, and… the timing of the trade in question,” says Piepgrass.
Kevin Frankel, a former prosecutor and partner at Benesch, offers a more direct test of intent: “If the trader is the person with the ability to create the outcome, inside information should be assumed.”
Yet beyond those clear-cut scenarios, ambiguity remains a major issue: “If… I trade on the same contract… it’s less clear what information drove my trade,” he adds.
Traditional enforcement tools still apply in theory, including analyzing communications and transaction timing. But applying them to decentralized, often anonymous markets introduces new complications, particularly when identity verification is limited.
Regulators playing catch-up in an evolving market
As these markets expand, regulators are moving to respond, but largely from frameworks built for different problems.
Platforms like Kalshi and Polymarket have introduced new rules banning insider trading and restricting participants with influence over outcomes. “These updated rules address both issues… [they] include substantive changes… [but] the platforms also know that the CFTC is undertaking its own rulemaking process,” claims Piepgrass.
Frankel states: “The timing suggests this was driven by getting out ahead of potential legislation.”
We could end up with a system that is totally compliant but inaccurate.
Marcus Denning, MK Law senior lawyer
Regulators themselves are beginning to coordinate more closely, recognizing that no single framework is sufficient. Financial and commodities regulators are increasingly aligning their approaches, reflecting the hybrid nature of these markets.
That being said, deeper structural tensions remain unresolved. Marcus Denning, senior lawyer at MK Law, argues that platforms are actively building a defensive posture: “I search for clumps of volume in minutes before the announcement of a significant event… Expert analysts typically accumulate positions over days… insiders… move large volumes on an unexpected day.”
He also warns that overly aggressive regulation could backfire: “We could end up with a system that is totally compliant but inaccurate… because the smartest people are afraid to talk due to the risk of prosecution.”
Efforts to impose strict identity verification and participation limits could push activity into offshore or unregulated markets, reducing transparency rather than improving it.
At a more fundamental level, experts disagree on whether prediction markets should be treated as financial instruments or a form of gambling, which further complicates enforcement.
Frankel states: “If a trade involves the outcome of a sports game, it should fall under state gambling regulations… Trades on political outcomes… can be tougher to categorize neatly.”
By restricting participation on the part of those who are most knowledgeable, you risk losing a great deal of the theoretical power of this market.
Stephen Piepgrass, Partner at Troutman Pepper Locke
However, Denning takes a different view: “Financial markets give the best protection because they focus on price and market information rather than the one-dimensional approach of gambling regulation.”
Meanwhile, skepticism remains about the premise itself. Frankel questions whether trading activity should be used as a proxy for truth: “If you want accurate data… we should have reporters interview [decision-makers]… not look at [their] trading account.”
Taken together, these perspectives point to the crux of the problem. Laws designed for corporate insiders and clearly owned information are being stretched to cover diffuse, fast-moving geopolitical intelligence.
The result is a widening gap. In sports, misconduct is easy to define, trace, and punish. In geopolitical trading and prediction markets, the same underlying behavior can exist without a clear legal pathway to address it.
As Heimlich puts it: “The penalties for exploiting geopolitical information should reflect how fast it moves markets.”
Until the legal framework evolves to match that reality, the mismatch will remain. Tighten the rules too far, and the smartest participants retreat or move elsewhere. Leave them as they are, and the suspicion never quite disappears.
Somewhere between those two outcomes is a line the law has yet to draw, and we end up in a chicken-egg situation.
Featured image: Pix4free.org / Nick Youngson / CC BY-SA 3.0
