Polymarket Probes Dozens of Election Market Cases

As US campaigns prepare for the November 3 midterm elections, Polymarket has investigated dozens of cases involving election-related trading, according to Shana Bautista, the company's head of global intelligence and investigations. At least two investigations have been referred to the US Commodity Futures Trading Commission (CFTC), according to a person familiar with the probes who was not authorized to speak publicly.

The investigations focus on suspected insider trading and market manipulation in election-related financial markets. The scrutiny comes as these markets have grown rapidly, prompting legal challenges from states and criticism from lawmakers concerned about potential threats to the democratic process.

Bautista, a former FBI official and cryptocurrency analyst who joined Polymarket in June, oversees a 16-person team using a new surveillance system to identify suspicious activity ahead of the midterms. She told NPR that the system combines data from social media, Federal Election Commission records, cryptocurrency companies, banking partners, statistical models and other public sources.

Users who possess confidential information related to elections should not use it for trading, Bautista said.

"If you have information that you have a duty to protect, don't trade on it," said Shana Bautista, Polymarket's head of global intelligence and investigations.

Bautista said the company's rules prohibit such activity and that violations can also break the law. Her team receives hundreds of daily alerts when accounts trigger internally established risk indicators, although she declined to disclose the specific detection criteria, citing security concerns.

The surveillance operation covers Polymarket's US-regulated platform, where users must provide their real identities, as well as its larger international operation, where users can trade anonymously using cryptocurrency. Bautista said investigators have been able to identify potential suspects in every case her team has handled.

"There's never been a case that we work where we haven't been able to identify, potentially, who these people are," said Bautista.

She said the team applies techniques used to detect suspicious activity in traditional financial markets while adapting its methods to the characteristics of election-related trading.

"We're looking at threat vectors and risk areas that have existed for decades in traditional markets," said Bautista. "But we recognize, too, that when it comes to prediction markets, we're seeing some of the old tried and known tactics, but being applied to a new vector through prediction markets."

Bautista said investigators also use findings from previous cases to improve their detection systems. The process examines patterns such as multiple accounts placing trades in rapid succession, shared device identifiers and newly created cryptocurrency wallets.

She described how investigators could identify a coordinated effort to influence perceptions of an election outcome by examining repeated transactions across several accounts. Findings from such investigations are incorporated into the surveillance system to help identify similar activity in the future.

Economist Rajiv Sethi, a professor at Barnard College at Columbia University who has studied these markets for decades, said election-related trading presents particular risks because market activity can influence public perceptions of a candidate's prospects.

"[Election prediction markets] have the possibility of being a self-fulfilling prophecy," said Rajiv Sethi, an economics professor at Barnard College at Columbia University.

Sethi said perceived shifts in a candidate's momentum could affect the campaign itself, creating a potential feedback loop between market expectations and political outcomes.

"Elections have the property that what one believes is going to happen can actually affect what happens if a candidate is thought to be losing momentum or the campaign is flagging," said Sethi.

Federal oversight of these markets remains limited, according to NPR's reporting, leaving much of the detection and enforcement work to the companies operating the platforms.