CFTC widens Polymarket probe beyond contracts to marketing

Key Takeaways

• The CFTC is reportedly investigating Polymarket's marketing practices, not just its unregistered contracts
• Senators allege Polymarket used fake trading sites, staged transactions, and undisclosed paid influencers
• Prediction market operators may soon face consumer protection rules similar to gambling companies

The Commodity Futures Trading Commission has reportedly opened a new investigation into Polymarket, and this time the agency is looking beyond whether the platform's event contracts are legally registered. According to analysis from Anderson Insights, regulators are now examining how Polymarket acquires customers, supervises third-party marketers, and presents products to retail users. The shift signals that prediction market operators can no longer treat compliance as a product-design exercise while outsourcing promotional activity to unaccountable affiliates.

This investigation lands four years after the CFTC settled an enforcement action against Polymarket (then called Blockratize Inc.) for operating unregistered binary options contracts. That 2022 case ended with a $1.4 million civil penalty and an order to wind down noncompliant markets. Polymarket subsequently moved operations offshore and blocked U.S. IP addresses, but continued to grow. During the 2024 presidential election cycle, the platform processed more than $3.5 billion in trading volume.

What triggered the new CFTC inquiry?

A June 25 letter from Senators John Curtis (R-Utah) and Adam Schiff (D-Calif.) appears to have accelerated regulatory attention. The senators cited allegations that Polymarket used simulated trading websites, staged transactions, and undisclosed paid influencers to promote activity on its offshore platform. If true, the lawmakers wrote, the conduct would be "deeply troubling and demand immediate scrutiny."

The letter also questioned whether prediction markets deserve a regulatory carve-out from gambling when social media creators portray them as "free money." Curtis and Schiff argued that operators "should not be permitted to avoid" consumer protection obligations that traditional gaming companies must follow simply by labeling their products as federally regulated derivatives.

Why marketing practices are now a compliance issue

The Anderson analysis identifies several specific concerns. First, simulated trading demonstrations may require clear disclosure so users understand they are not watching real transactions. Second, influencer marketing that fails to disclose paid relationships could violate FTC endorsement guidelines. Third, promotional content depicting large winnings or suggesting easy profits could constitute deceptive conduct under CFTC Rule 180.1.

Regulators seem prepared to treat customer acquisition as part of the regulated product itself. That reframes the compliance burden. It's no longer enough to ensure the smart contract settles correctly. Operators must also document how they vet affiliates, review promotional materials, and ensure claims about profitability or liquidity are accurate.

How prediction markets blur the gambling line

Prediction markets can be structured as derivatives under federal commodities law. But retail customers often experience them as wagers on elections, sports, litigation outcomes, or celebrity gossip. Dan Berkovitz, a former CFTC Commissioner, previously noted that "event contracts that involve elections, sports, or other 'excluded commodities' raise fundamental questions about gambling versus hedging that Congress never clearly resolved."

The distinction matters because gambling operators face strict consumer protection rules: age verification, responsible gaming tools, truth-in-advertising requirements, and licensing by state gaming commissions. If prediction markets are functionally equivalent to betting apps, regulators may argue they should bear equivalent obligations.

What operators should do now

Anderson Insights recommends prediction market companies strengthen compliance controls in several areas. First, document how U.S. users are blocked from the platform, not just by IP address but through KYC processes. Second, supervise affiliates and influencers through written agreements that require disclosure and prohibit misleading claims. Third, review all promotional materials before publication. Fourth, clearly label any simulated trading demonstrations. Fifth, monitor offshore contractors involved in marketing.

The CFTC is also separately considering broader rules for prediction markets. In June, the commission proposed revisions to its public-interest review process for event contracts, expanding restrictions on contracts tied to terrorism, war, and other prohibited subjects. That rulemaking shows the agency is still defining what types of event contracts are permissible at all.

Frequently Asked Questions

What did Polymarket pay in the 2022 CFTC settlement?

Polymarket paid a $1.4 million civil penalty and agreed to wind down noncompliant markets after the CFTC found it operated unregistered binary options contracts.

Why are senators comparing prediction markets to gambling?

Senators Curtis and Schiff argue that when influencers promote prediction markets as easy money, the products function like gambling and should face the same consumer protection rules as casinos.

What marketing practices is the CFTC reportedly investigating?

The probe reportedly covers simulated trading demonstrations, staged transactions, undisclosed paid influencer relationships, and claims about easy profits.

Can U.S. residents legally use Polymarket?

Polymarket blocks U.S. IP addresses and officially prohibits U.S. users, but the investigation suggests the platform may have continued targeting Americans through offshore operations and social media marketing.

What rule does the CFTC use to regulate deceptive marketing?

CFTC Rule 180.1 broadly prohibits manipulative or deceptive conduct in connection with commodity interests, which could apply to misleading promotional materials.

Source: PYMNTS | / PYMNTS