Key Takeaways:
Goldman Sachs and Morgan Stanley are among a growing list of financial firms barring employees from trading on prediction markets, as concerns over insider trading using nonpublic information push companies and regulators to act.
Goldman Sachs has updated its internal compliance policies to prohibit staff from placing bets on prediction platforms including Kalshi and Polymarket, according to people familiar with the matter. Morgan Stanley has confirmed it is developing similar restrictions. The moves come as the $10 billion prediction market industry faces mounting scrutiny from corporate compliance officers, state attorneys general and federal investigators.
"Prediction markets present a new vector for potential misuse of confidential information that traditional trading policies were not designed to address," said Sarah Chen, a partner at Davis Polk & Wardwell who advises financial institutions on compliance. "Firms are realizing their existing insider trading frameworks have a blind spot."
The concern centers on the unique nature of prediction markets, which allow users to buy and sell contracts tied to event outcomes — from Federal Reserve rate decisions to corporate earnings to military operations. Unlike traditional securities, these contracts are not subject to the same disclosure rules or surveillance systems that govern stock and bond trading. A U.S. Army soldier was charged in April with using classified information about plans to capture Venezuelan President Nicolás Maduro to make more than $400,000 on Polymarket, a case that has become a flashpoint in the debate.
Arizona Governor Katie Hobbs issued an executive order Thursday prohibiting state executive branch employees from insider trading on prediction markets, designating any nonpublic information obtained through public service as confidential if it could be used for wagers. Violators face termination and potential criminal referral. The order specifically cites the Army soldier case as a catalyst. Arizona is also pursuing criminal charges against Kalshi, accusing the platform of illegal gambling in a 20-count indictment filed in March, though a federal judge has temporarily blocked enforcement.
Kalshi has implemented a monitoring program that cross-references Federal Election Commission data against its user logs to block campaign staffers from betting on races they work on. The company says it blocked "dozens" of such trades since May and launched more than 150 insider trading investigations in the first quarter of 2026, referring at least 20 cases to law enforcement. Polymarket says it has made nearly 100 referrals across all its markets.
The House Oversight Committee is actively investigating both Kalshi and Polymarket over their enforcement efforts. Chairman James Comer, a Kentucky Republican, launched the probe after the Army soldier indictment. Both companies have given closed-door briefings to the committee and are cooperating, according to committee staff.
At least 21 prediction market bills have been introduced in Congress this year, though none has advanced through either chamber. The Commodity Futures Trading Commission, under Trump-appointed Chairman Michael Selig, has largely declined to police the industry, leaving enforcement to the platforms themselves and to state authorities.
For Wall Street, the stakes are clear. A compliance failure tied to prediction market trading could expose banks to regulatory penalties and reputational damage similar to those from traditional insider trading cases. The last major insider trading scandal at a U.S. bank — involving Goldman itself during the 1MDB affair — resulted in $5 billion in penalties and years of regulatory oversight. With prediction market volumes growing and the 2026 midterm elections approaching, firms are moving to close the gap before regulators force them to.
This article is for informational purposes only and does not constitute investment advice.
