Enforcement and the Regulatory Road Ahead
One of the clearest themes from FORWARD was that prediction markets are no longer a theoretical or fringe concern for regulators, prosecutors or market participants. As event-driven contracts increasingly intersect with securities, commodities, sports, gaming and retail trading, the central question is how existing laws will be interpreted, applied and extended as these markets scale.
That was the focus of a FORWARD panel on regulation, enforcement and market integrity, featuring:
- Joaquin Gubb, VP, Head of Securities Legal, Crypto.com
- Jack Murphy, Senior Counsel, Akin Gump
- Carolyn Pokorny, Former Acting U.S. Attorney & Inspector General, U.S. Attorney’s Office for the Eastern District of New York
- Dorothy DeWitt, moderator, CEO & Founder, Tölt Strategies / Former Director, CFTC Division of Market Oversight
The discussion covered the evolving posture of the CFTC, DOJ and state regulators; the expanding litigation landscape and the practical compliance expectations facing prediction market operators today. Here are some of the key takeaways.
Existing Laws Are Already Being Applied
The panel opened with a premise that shaped the rest of the conversation: prediction markets are developing quickly, but regulators and prosecutors are not starting from scratch.
Gubb said he does not view the current moment as a “fundamental shift,” because the CFTC, SEC and DOJ already have meaningful jurisdiction and enforcement tools available. From his perspective, the most constructive path is active engagement between industry and regulators, with a focus on identifying risks, strengthening customer protections and supporting innovation in a nascent market.
He also emphasized the importance of distinguishing between regulated U.S. platforms and offshore venues. “There’s a big difference when platforms are here in the U.S. and a customer is trading through a regulated U.S. platform, CFTC registrant, versus an overseas platform,” he said. In the latter case, customers may not know what protections apply, where funds are held or what rules govern the contract.
Pokorny’s message from the criminal enforcement side was more direct: “Don’t wait for the regulators in the industry to catch up. They are already here and looking at this industry.” She pointed to recent sports integrity indictments involving professional and college athletes as evidence that prosecutors are already willing to apply traditional statutes – including wire fraud, money laundering and conspiracy – to misconduct adjacent to betting and event-driven markets.
Her broader point was that prosecutors do not need new, prediction-market-specific criminal laws to act. “Traditional laws suffice for prosecutors to believe they have sufficient evidence to bring charges,” she said.
Enforcement Pressure Is Likely to Increase
Murphy described a CFTC enforcement environment that has been unusually quiet but may be poised to change. He noted that CFTC enforcement activity declined substantially over the past year, but argued that new leadership and growing attention around prediction markets could lead to a more active posture.
He pointed specifically to insider trading risk. “The CFTC has never brought a case related to insider trading on prediction markets,” Murphy said, largely because the markets are new. But with allegations surfacing frequently and attention increasing from the CFTC, Congress and the public, he said “every signal from the CFTC right now suggests that they will be ramping up enforcement in this space.”
Murphy’s prediction proved prescient. Later that afternoon, while FORWARD attendees were gathered for the post-program networking reception, the CFTC issued a release announcing that a U.S. service member had been charged with insider trading in Nicolás Maduro-related event contracts – a historic first for prediction markets.
Pokorny added that DOJ is also signaling its interest, both through indictments and public statements. She cited comments from Jay Clayton, U.S. Attorney for the Southern District of New York and former SEC Chair, who indicated earlier this year in comments to Law360 that enforcement action involving prediction markets should be expected (“Because it’s a prediction market doesn’t insulate you from fraud”). For Pokorny, the significance was not only the substance of the comment, but the fact that it was made publicly.
“Typically, prosecutors speak through indictments, not through statements like that,” she said. “It’s kind of a call for action and also probably a call for witnesses and cooperators and whistleblowers to come forward.”
Litigation May Define the State-Federal Boundary
The panel also addressed the growing body of litigation over the respective authority of federal and state regulators. Murphy described the litigation landscape as “a gigantic topic,” noting that his team has tracked more than 60 cases involving prediction markets as plaintiffs or defendants, including more than a dozen involving a state or state agency.
A key issue is whether and when event contracts fall within the CFTC’s exclusive jurisdiction under the Commodity Exchange Act, particularly when states view the same activity as gambling. Murphy highlighted a recent Third Circuit decision holding that sports event contracts are swaps because they have potential financial, economic or commercial consequences, giving the CFTC exclusive regulatory authority. But he also noted that other courts may be skeptical of that interpretation.
“I think we are starting to see potentially the beginnings of a circuit split here,” Murphy said. “The consensus among a lot of people who have been following this very closely is that this will ultimately end up at the Supreme Court.”
DeWitt added that even a Supreme Court decision may not be the end of the story, since Congress could choose to amend the statute. For market participants, the practical takeaway is that the legal foundation is still developing, and firms should not assume today’s boundaries will remain fixed.
Compliance Programs Must Build for Hindsight
A recurring theme was that enforcement risk is not limited to the present regulatory environment. Pokorny stressed that statutes of limitations can run five, seven or even ten years, and investigations often take years to develop. Conduct occurring today may be reviewed by prosecutors in a future administration, under different priorities and with the benefit of hindsight.
That has immediate implications for compliance. “Your compliance programs that are being built now,” she said, “are going to be looked at by DOJ prosecutors with the benefit of hindsight of years down the road.”
Gubb emphasized that exchanges and SROs can play an important first-line role by using surveillance, investigations and rulebook enforcement to act quickly. Unlike criminal prosecutors, who may need years to investigate and may focus on larger-dollar cases, exchanges can suspend accounts, freeze funds, close accounts and refer matters to the CFTC or DOJ.
“When we catch it, we can act almost instantaneously,” he said. “In this space, we have the advantage of those SRO licenses to take almost instantaneous action.”
DeWitt closed the discussion by emphasizing the importance – and difficulty – of building that rule enforcement function. New exchanges entering the market may not yet have the staffing, experience or internal infrastructure of mature market operators. But as prediction markets grow, surveillance, investigations, notice processes, default procedures and consistent disciplinary standards will become increasingly important.
For firms operating in this space, the message was clear: prediction markets may be new, but the expectations around market integrity, customer protection and enforcement readiness are not.
This concludes our FORWARD blog series. For additional perspectives from industry experts on market structure, surveillance and enforcement in the prediction markets era, download the full FORWARD recap report, The Future of Prediction Markets.