Marc Weinstein Discusses First Test of Prediction Market Enforcement

Marc Weinstein spoke to Law360, examining the implications of the first significant test of how prediction markets may be policed, arising from a case involving bets by a U.S. Army sergeant who helped plan the capture of Venezuelan President Nicolás Maduro.

Federal prosecutors and the U.S. Commodity Futures Trading Commission (CFTC) allege that Master Sgt. Gannon Ken Van Dyke used classified information to earn more than $400,000 through prediction market trades related to the capture of Maduro.

The case is the first prosecution and first CFTC suit targeting insider trading on event contracts, which allow users to wager on the outcome of real-world events ranging from political activity to sports matches.

Weinstein discussed the challenges the government faces in the case, including convincing the court that the event contracts themselves are swaps, to make the commodities fraud charge stick and, if the case reaches a jury, the added challenge of explaining derivatives regulation.

However, Weinstein added that the case provides an opportunity for prosecutors to test a new theory, as only one charge needs to stick for a conviction.

“If you're going to test something that's relatively novel, why not do it when you've got an easy fallback and the facts are very much in your favor?” Weinstein said. “Because if they ultimately lose that charge, who cares? It has no real impact on the prosecution.”

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