[00:00:00] Speaker A: Foreign.
[00:00:13] Speaker B: Welcome to this live episode of @ the Cast Reacts, in which we'll look into an unusual aspect of last week's raid by the United States upon Venezuela insider trading. On Friday, January 2, President Trump ordered a military raid on the capital of Venezuela to apprehend President Nicolas Maduro and his wife so they could face US Criminal charges of drug trafficking and narco terrorism. The raid stunned the world, but not the individual who placed a large bet on this precise outcome on the prediction market polymarket. Just hours before the raid, a newly created account on Polymarket placed a $30,000 bet on whether Maduro would be in power or out of power by January 31st. That bet paid off an astounding $436,760.
Now prediction markets work like a hybrid between investment markets and prop betting. Investors buy shares in the yes or no or A or B outcome of a projected uncertainty. Will stranger things drop an extra episode after the season five finale by the end of the week? Let's hope so. Will Israel fire missiles into Iran by the end of January? Who Will be the 2028 US Democratic nominee? Will Arsenal or Manchester City win the 2025, 2026 English Premier League? And so on? Prediction markets have been around for a while, but they have exploded in betting volume in recent years. Predictive market Kashi, for example, has a betting volume of more than $1 billion per week, but it also prohibits the use of inside information on its platform. But polymarket does not forbid insider information, except where doing so would create financial market manipulation and or violate applicable laws. In fact, its CEO has specifically stated that the platform quote creates a financial incentive for people to go and divulge new information, which creates an environment where insider trading is a feature and not a bug. Now, what raised eyebrows over this Maduro bet is the timing of it and such heavy investing in long odds, which of course bears the hallmarks of someone with inside information.
The likeliest suspect would be someone within the Trump administration or of the US Military. But since news of the raid leaked to a few media outlets ahead of time, the bet also could have been made by someone there or someone that they spoke to. And this isn't the first fishy polymarket bet either. In December, someone made nearly $1 million on polymarket after winning 22 of 23 bets on what topics would rank on Google's annual list of the most searched items. And there are further reports of suspiciously large bets paying off late last year around the timing of OpenAI's product release, a 2022 settlement with the Commodity Futures Trading Commission was which regulates prediction markets prohibited U.S. users from placing bets on Polymarket. But since the platform runs on cryptocurrency and anyone with a VPN can still access the site, that prohibition wasn't going to stop determined users. Be that as it may, the Trump administration rolled back that prohibition last summer, clearing the way for Polymarket to once again to be available in the US following the Maduro bet, Representative Richie Torres of New York has introduced the Public Integrity and Financial Prediction markets Act of 2026, which which would essentially apply the same standards for financial market insider trading to public officials, corporate executives and other investors activities within predictive markets. It remains to be seen if Speaker Mike Johnson will even hold a vote on this, let alone if President Trump would sign it were it passed. With that all out of the way, with us to discuss whether or not we're entering a golden age of inside information and how businesses can best respond to it, is Ethisphere Chief Strategy Officer Erica Salmon Burn. Erica, it did not take us long to find a reason for another at the cast reacts this year, did.
[00:03:51] Speaker A: It? It did not, Bill. It did not. And I think the, the only reason why we've hit the 7th of January is the fact that we were both on vacation and all of this first started to unfold. This is such an interesting piece of this story, Bill, because it is in many ways a natural outcome of some of those developments that you just summarized so well at the beginning conversation. And it is particularly kind of that, that that overlapping place of I know something and I can make money using the thing I know. And so that is really, to me the lesson that a compliance officer needs to take away from this particular piece of, of the of current events is having a conversation with the relevant people inside of your organization to be able to say how do we think about information dissemination and how do we think about making sure that that information is treated the way it needs to be treated and people are not tempted to take advantage of the ability to anonymously make a pile of cash. So there's a couple of pieces in this particular puzzle, particularly as it applies to polymarket. Now, you know that is a place where if you have a VPN and a crypto account, you can bet anonymously and in some cases because the crypto is in the public blockchain, people can figure out who you are. But if you cover your tracks reasonably well, you know, you can absolutely take something that nobody else knows and make a fair amount of money on it. So think long shot movies to win an Oscar. Right. You know, there's a small number of people who know the answers to those questions.
How do we as the public have faith in the confidentiality of that? Right. So there's a trust element to this. And how does the company, you know, how does in this particular case, the auditors that safeguard the confidentiality of that information, how do they make sure that all of their employees are not tempted by the opportunity to make some quick cash on the side? It really is an extraordinary combination of access to information, the ability to anonymously engage in behavior, and a platform that, you know, while not using insider information is in the terms of use.
We all know how many people actually read the terms of use. So a prevention perspective. This is a really thorny problem and we should not be. I mean, look, the legislation that was introduced is great, but we should not be expecting that the regulators are going to help us on this one because the CFTC has an eighth of the staff of the sec.
And you know, Trump's son sits on the board of advisors for both, both of the two primary prediction markets. So yeah, really is. And, and True Social says they're going to start their own. So there will soon be a third prediction market that you can potentially make your bets on. And so this is not going to be a situation where regulation is going to catch up with us. This is going to be a situation where, you know, we are going to have to look as compliance professionals, as people inside of our organizations, we're going to have to look really hard at who do we give information to, what do we know they're going to do with that information, and how do we think seriously about making sure that confidential company information is kept.
[00:07:26] Speaker B: Confidential?
So an increasingly prevailing mindset within the prediction market space is that use of insider information is actually a good thing in that it eliminates bias and IT services material hidden details that can really help meaningful decision making. So, Erica, you just offered a really wonderful preamble to all this, but what are your thoughts on that kind of mindset vis a vis just the general ethics of insider information.
[00:07:49] Speaker A: Overall?
Yeah, you know, I mean, I, I think it's, I think it's an interesting argument that is made that, you know, for, for certain types of information, you might have a leg to stand on. But when I think about some of the company pieces, right, I mean, making money on 22 out of the 23 most googled terms in the, in year, in the year 2025, that's not really confidential company information in the sense that we're talking about it.
So I'm thinking more about things that, you know, where I am confident that someone is. Is. Is taking good care of information.
The release of a new product, for.
[00:08:33] Speaker B: Example. Yeah, right. So I had in.
[00:08:35] Speaker A: Mind significant mergers.
You know, that. That significant mergers is a place where we see insider trading on the investment markets already. The SEC is very. Is. Is utilizing a lot of AI tools to be able to try to catch that kind of activity. Bill, you and I have talked about that, but what if, you know, I could pop onto polymarket and place a bet on whether or not Paramount is going to succeed in its bid to acquire the assets of Warner Brothers over Netflix? Yeah, probably somebody willing to take the other side of that particular equation. And is that really the kind of thing where we think that is we should be encouraging that kind of activity? It's. It's.
At the end of the day, the reason that the securities and Exchange Commission modulates insider trading is fairness. Right. We don't want people winning and losing money based on information that is not in the public domain. That's. That's the formula. I would argue that the same formula applies in the prediction markets as well.
If you have information that advantages you over somebody else, should you really be allowed to use that information to make money at the expense of another person? Now, we could say, look, the other person didn't have to take the other side of that particular equation.
But no, it's a. It's about a fundamental sense of fairness in the way that these transactions are occurring. And, and that, I think, is at the heart of the way we need to think about this. Whether we're talking about the investment markets or we're talking about the prediction markets. If you are making a bet based on information that you have seen out in the world that anybody could have seen, that's one thing. You know, if you're making a bet based on information that you specifically had access to because of your job, that's something entirely.
[00:10:32] Speaker B: Different.
Yeah. So what should businesses be thinking about in terms of the new risks that access to entities like polymarket can bring, in terms of the way employees can use information they have access to at.
[00:10:45] Speaker A: Work?
Yeah. So I think there's a couple of things that company companies need to be doing here, Bill. One's going to be talk to your employees about this. Right.
Look at your, at the way you talk about insider trading. Look at the way you talk about you train people around this particular issue and ask yourself whether there is the kind of information that your employees have access to on a regular basis that would cause them to be tempted to access a market like poly Markets to try to make money off of that information.
That's going to be a larger employee base probably than the people that you think about from an insider trading perspective, right? When if we look at a lot of insider trading policies or we look at a lot of insider trading training courses, what we see is a lot of discussion of what is material, what is non public, right. We talk about mergers and acquisitions, we talk about financial performance, we talk about product launches.
And all of that is probably going to apply in the prediction markets as well. But you, you, you are going to want to think about are there things my company is doing that someone would be tempted to bet on and have that conversation with your employee base to say, hey, like this is something you need to be aware of. We are concerned about it. This would be a misuse of our company information and there would be consequences if you were, you know, found to have engaged in it. So that's piece number one is really thinking about, you know, how do I talk to my employees about this particular risk? And then I would also say it is an opportunity for you to review who has access to what inside your organization.
Do you have the right kinds of information controls in place such that this information doesn't go somewhere that it shouldn't go? Now, to go back to the, this particular fact pattern, Bill, with the Maduro raid, those two newspapers that got a heads up that this might potentially be happening, neither of them reported on it because they were concerned that they were going to put American troops at risk. And so, you know, there is an ethos to that kind of analysis that is long standing inside of, of of journalism schools. It's something that journalists gets, journalists get trained on. And so it's that same sort of can attest. Yeah, it's that same sort of thing that you need to be thinking about as an ethics and compliance professional. Right.
Much like we talked about inside information, Bill, in some of our sports, you know, our sports scandal series that we ended up spending 20, 25 doing with the prop betting and all of the rest of it, it's the same kind of exercise here. If there's a CEO succession battle inside your organization, do you really want people betting on who's going to, you know, successfully succeed you as CEO? There's so many potential corrupting influences of this kind of activity that as compliance teams, we need to be comfortable talking to employees about why this would be detrimental to our reputation, why this would Undermine our intangible assets. Why? This would lead to a potential impact of valuation in the business so that they can, they can think about that information as a company asset.
[00:13:49] Speaker B: Yeah. Well, this whole story strikes me as a really good example of how technological innovation and market innovation can kind of outpace regulation and bring us all to a place sort of outside the traditional context of ethics itself. So I'd love to know, you know, from your perspective, how does insider trading within prediction markets affect your sense of the larger business integrity landscape in.
[00:14:12] Speaker A: General? Yeah, I mean, it's, it's. If we, if we go to the.
I was just reminded of this parable in a newsletter that I read this morning, Bill, back to our, you know, conversations about it being the New year.
It was a, a paraphrasing of the old parable about having the two wolves inside you. The, you know, one is negative, the negativity, the fear one, and the other one is the positivity. And the son asks the elder, which one wins? And the response is the one you feed. Right. This is a similar sort of a thing.
You know, the, the, the, the con, the, the conversation that we need to be having with our employees, the people who safeguard our company information, the people who are responsible for our brand reputations.
Those conversations need to be about the importance of keeping company information confidential and not misusing that information. And we need to have that as a broader conversation that is part about, that is a part of why we do the work we do and, and why we exist in the world. Because the temptation to engage in insider trading has been there forever, right? We have seen insider trading for as long as there has been. There have been investment markets, and the prediction market is just an additional layer on top of that temptation. And so the counterbalance, right, the one we choose to feed, the counterbalance is going to have to be substantial because you can do that, you know, again, on Polymarket, you can do this anonymously. And, and that is going to cause headaches for compliance teams leading into 20, 26. And so hopefully people can use this fact pattern to get out in front of it.
And look, you know, it's the.
Between the two prediction markets, you can only anonymously register for one of them. And so the other piece of this is, you know, what pressure can be put on polymarket to at least take the anonymity piece off the table so that if someone is engaging in this kind of behavior, we have a better chance of figuring out who they.
[00:16:19] Speaker B: Are.
Indeed. Indeed. Well, Erica, thank you once again for your insights on all this when we covered the NBA and prop bets late last year, I did not think that what we would be really doing is warming up for this conversation. So thank you so much for being your insights to this.
[00:16:33] Speaker A: One. Oh Bill, it's 100% my pleasure. You know, this is, this is a really interesting fact pattern. This is a really interesting development and hopefully it is something that compliance teams can use to have a much needed conversation with their employee base. Because, you know, as you, as you and I said when we talked about the NBA piece last year and then Major League Baseball, right, All of these are things that, that are out there in the ecosystem and the, the, the smart companies are using them for the right kinds of conversations with their.
[00:17:04] Speaker B: Employees.
Indeed. Well, if you found this conversation helpful, then please join us on March 30th and 31st in Atlanta, Georgia and virtually for the 2026 Global Ethics Summit, a Can't Miss conference featuring the most insightful and influential thought leaders in the field of ethics compliance and business integrity. Check out attendges.com to register and for an early look at the agenda, which will feature topics such and employee engagement, program transparency, use of AI, ethical leadership, third party risk, cross collaboration and regulatory updates. This is one event that you can't afford to miss.
Also, for plenty of free ethics and compliance resources, visit the Ethisphere resource
[email protected] resources.
And finally, to appear as a guest on this program and share an ethics and compliance best practice or success story, please drop us a
[email protected] at the cast thanks so much for joining us. We hope you've enjoyed the show. For new episodes each week, be sure to subscribe on YouTube, Apple Podcasts and Spotify. And if you don't mind, please share us with a colleague as well. It really helps out the show. That's all for now, but until that's all for now, but until next time, please remember, strong ethics is good business. We'll see.
[00:18:16] Speaker A: You. See you.
