Polymarket says its trade-surveillance systems are primed for the U.S. midterms as regulators and lawmakers intensify scrutiny of prediction markets. In her first interview since joining Polymarket in June, Shana Bautista — the company’s new global head of investigations and intelligence and a former FBI investigator and Coinbase analyst — told Reuters that the firm has tools ready to flag unusual, election-related trading. “I’m confident that I’m able to get the resources and the support I need,” Bautista said. “I can tell you that we have the systems in place to be able to identify anomalous activity when the midterms do come.” What Polymarket says it’s doing Polymarket describes a multi-layered surveillance program that combines machine learning, blockchain analytics, trade surveillance, open-source research and third-party services to detect potentially malicious trading. A spokesperson said the company will publish a new webpage with more detail about those controls and how it cooperates with law enforcement. “The market integrity program itself is not new, but what we’re putting on the record now is considerably more detail about how it operates,” Bautista added. Blockchain transparency — a double-edged sword Trades on Polymarket’s international platform settle on-chain, creating a public ledger of transactions even when wallet owners remain pseudonymous. Critics say that anonymity can enable insider trading or manipulation, but Bautista argues the blockchain trail can also be a powerful investigative tool. Polymarket says it has referred more than 100 cases to law enforcement, including one tied to a U.S. soldier accused of using classified information to trade on a contract related to the capture of Venezuela’s Nicolás Maduro. Court filings in that matter allege roughly $409,881 in proceeds from 13 Venezuela-related trades; the defendant has pleaded not guilty and challenged whether the contracts qualify as swaps. Insider-trading concerns and political pushback Congress and researchers have grown increasingly concerned that prediction markets could be used to trade on nonpublic government information. A unanimous Senate vote in April barred senators and their staff from trading on prediction markets such as Polymarket and Kalshi, and Rep. Bryan Steil has pushed to extend trading bans for lawmakers and their families. More than 40 Democratic members of Congress have asked the CFTC and the U.S. Office of Government Ethics for guidance to stop federal employees from using nonpublic information to trade contracts tied to politics, military actions and other sensitive events. Academic work suggests nuance Academic research cited in the coverage warns that blanket bans could reduce the information content of market prices; the study recommends distinguishing between traders who merely possess private information and those who can influence outcomes, and calls for stronger penalties for the latter group. Enforcement limits and U.S. access Polymarket’s international platform is supposed to be off-limits to U.S. customers following a 2022 CFTC settlement in which the company paid a $1.4 million civil penalty for offering event-based binary options without registering. The settlement required Polymarket to prevent U.S. users from accessing the international venue. Bautista said the company’s controls block most American users and that evasion at scale is difficult. But on-chain research firm Allium estimated that U.S.-linked wallets still traded about $571 million in political contracts on Polymarket over a one-year period — a directional estimate, the firm cautioned, because blockchain links to nationality or identity are imperfect. Regulatory posture and the U.S. business Polymarket has pursued a two-track approach: keeping its international, blockchain-settled platform separate from a U.S.-facing, CFTC-registered exchange the company acquired last year. That U.S. operation follows commodities rules; the international service remains a blockchain platform closed to Americans. Federal scrutiny has also shifted recently — Reuters reported that regulators dropped an investigation into whether Polymarket had breached the 2022 settlement, a development CEO Shayne Coplan said cleared the company of wrongdoing at the time. State-level disputes and sports markets Beyond federal oversight, prediction market firms face fights with states over whether certain event contracts — especially sports-related ones — are gambling products that require state licenses. Operators argue qualifying event contracts fall under federal commodities law and CFTC jurisdiction; states disagree, and litigation is ongoing. Why this matters for the midterms As midterm-related markets draw heavier attention, Polymarket intends to disclose more about the mechanics of its surveillance: how it uses blockchain analytics, machine learning and trade monitoring to spot suspicious activity and refer cases to authorities. With lawmakers advancing restrictions and researchers calling for targeted enforcement, platforms that let users trade on political outcomes will remain under close watch through the election season and beyond. Read more AI-generated news on: undefined/news