[00:00:00] Speaker A: Foreign.
Hi, everyone, and welcome to another episode of the Ethicast. I'm your host, Bill Coffin, and in this special edition of Ethicast Reacts. I'm delighted to welcome back to the show Ethisphere Chief Strategy Officer Erica Salmon Byrne. Erica, before we get started, I should probably disclose to you now that I have placed sizable bets on both polymarket and Kalshi that, that we'd be doing a live episode this week.
[00:00:33] Speaker B: Well, Bill, thank you for previewing. Precisely why we should not be allowing people with inside information to, to place those kinds of bets. But I'm also a little surprised that someone was willing to take the other side of that contract and think that we wouldn't do a live episode this week, given everything that's going on.
[00:00:50] Speaker A: That is an excellent, excellent point. And normally we get together for these episodes to talk about a single news story, but this time it's, it's for us to consider kind of a constellation of them through an ethics compliance lens because in recent days we've seen further evidence of the misuse of inside information within prediction markets. So let me hit everybody with some background before we get into some. Into my questions for you, Erica. So for those of you who are not aware, 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, like will Finland or Greece win the 2026 Eurovision contest? Or will the Fed change interest rates in June? Will traffic in the Strait of Hormuz return by return to normal by May 15? Will Tottenham Hotspur be relegated at the end of the English Premier League League? And so on. Prediction markets have been around for a while, but they have really exploded in betting volume in recent months. In recent months. And on a more troubling note, they increasingly appear to provide an avenue for the improper use of inside information, as well as a vector for fraud, cheating and other undesirable outcomes. So here are some of the news stories that kind of prompted us to have today's discussion. So, back in January, Erica, you and I covered how a suspicious poly market bet was made on whether Venezuelan President Nicolas Maduro would remain in power shortly before the U.S. raid that deposed him. Well, on April 24, a U.S. special Forces soldier involved with the planning of that raid was charged with improper use of confidential government information to make more than 4, $400,000 in poly market bets on the raid's outcome. And this is not the first time that the security of military operations appears to have been compromised by prediction market Betting.
Recent reporting notes that long shot bets on military operations have a highly suspicious 52% win rate or so. This issue has renewed pressure on lawmakers to do something about it. And I think on the very last day of April, US Senators voted to ban themselves from trading on platforms including Kalshi and polymarket.
[00:02:46] Speaker B: And interestingly, bill with them and their staffs. So you know that that sort of. That whole ecosystem has at least taken a step in the right direction.
[00:02:56] Speaker A: Indeed. Indeed. Now, meanwhile, on April 6 and April 15, weather sensors at the Charles de Gaulle Airport in Paris suddenly spiked and gave a sufficiently high enough reading to net one better. A combined $34,000 on polymarket bets around the temperature readings at the airport.
French police have launched an investigation into what they believe is intentional tampering with airport weather sensors, either with a handheld lighter or a blow dryer to provide a false reading in order to win polymarket bets. Now, given that those sensors are used to calculate things like proper takeoff distance and climb rate, this is a case where prediction market fraud could have potentially endangered planes and their passengers.
And finally, college football quarterback Brendan Sorsby, who transferred to Texas Tech from Cincinnati for $5 million in the off season, recently checked into a gambling addiction facility after it was discovered that Sorsby had violated NCAA rules on betting on college sporting events many times over an extended period. While Sorsby does not appear to have bet on games which he took part, his eligibility is now in serious jeopardy while Texas Tech is treating this as an addiction issue. But Sorsby's situation is merely one more proof point in an ongoing discussion around the conflict between sports betting and sports integrity, which despite the emergence of integrity compliance tools and AI detection, continues to erode confidence and support itself thanks to its continued presence within prediction markets. Okay, so that's the background. It's probably a pretty epic background for one of these, but there's so much going on and I think we just had to kind of cut it off a certain point.
So, Eric, I'd like to start by talking about the first thing about the follow up to the Maduro raid. So we're going to come back to that.
We covered that back in January because of the suspicious activity around it. And just to drill down a little bit further. So it was a few days that the U.S. government charged us Master Sergeant Gannon Ken Van Dyke with unlawful use of confidential government information for personal gain, theft of non public government information, commodities fraud, wire fraud, and making an unlawful monetary transaction. Van Dyke is alleged to have used confidential government information to personally enrich himself off of a national security situation. Now, Erica, you have noted previously that prediction markets create insider information risk for everyone, not just governments.
What more would you like to add to that given the most recent developments in this particular story?
[00:05:13] Speaker B: Yeah, so Bill, I, you know the, the piece about the analysis of kind of what sort of patterns can we see in prediction market data also called out the fact that the second. So the, the most likely long shot contracts that were paying out and long shot was, you know, 35% odds or less were military and, and other sort of national security related contracts raised a lot of questions and concerns. The second was cultural events like singing competitions and other, other shows along those lines.
And in both cases what you have is you have a balance of temptations. So you have a group of people who have the answer to a question who's going to win the Bachelor? Who's going to win Dancing with the Stars? Who's going to win the Voice?
Which you know. And this was, this is an actual case where, you know, Kelsey, as a platform actually banned this particular individual from participating in the platform who's going to win a Mr. Beast competition. Right. That was in one of the Mr. Beast videos.
There, there, there is a group of people that have that information and they are seeking because they can to personally profit on it. I mean you can walk around with this thing. This is a casino in my pocket. And it is incredibly easy and incredibly tempting to make a little on the side for some information that you have as a result of your job. And if you are an ethics and compliance professional listening to Bill and I, and most of you are, because that's who you know, likes to listen to Bill and I nerd out on ethics and compliance issues.
If you're an ethics and compliance person listening to Bill and I, you have to get in front of this issue because of the reputational, the potential reputational concerns.
So if you are currently not regularly monitoring the prediction platforms for mention of your company, you should start doing that now because the platforms make it very easy. I have both Polymarket and Kelshi up on my computer right now. Bill, you and I are not on it, happy to say.
But lots of things are that people have access to.
[00:07:29] Speaker A: Yeah, right.
[00:07:30] Speaker B: Size of the workforce, particular user statistics for a given product, product launches, who, you know, when it was time for the Tonys, people were offering contracts on who's going to win the Tony Award. Right. There's, there's a opportunity that isn't, that is being presented to people who have the answers to These questions and every day. And so we have to have a real conversation with our employees, with our suppliers, with the people in our ecosystem so that we don't undermine the trust that people have in the integrity of the operations of our organizations. Think, Bill, about the scandal around the Oscars. Right. You know, several years ago, amplify that by a factor of 10, and we have what's happening with the prediction markets as it pertains to companies in particular.
And that's setting aside some of the potential more serious harms that can come from improper use of inside information. Right. You mentioned with the.
What happened at Charles de Gaulle Airport with the weather stations. I didn't even know that people were actually trading money based on how hot it was going to be in Paris on any given day. And the official weather stations at the airport, because the weather really matters to the safe arrival and departure of airplanes. And so if you have people who are being incentivized to mess around with those, those sensitive pieces of equipment to personally profit, we have a real problem. Similarly, if, you know, if, if, if you're involved in something related to national security and you are, are placing bets on these platforms, I mean, this is the, the, this danger, Bill, that, that an adversary is going to use this information to glean what the American
[00:09:21] Speaker A: to
[00:09:21] Speaker B: do is the reason why after 9, 11, the Pentagon decided not to build this kind of market because they didn't want to create perverse incentives. And we, what, what has happened is we now have perverse incentives, and we're seeing the consequences of that. Right. Kelsey banned a couple of politicians for betting on their own campaigns. I mean, what on earth are you thinking? Betting on your own campaign?
[00:09:46] Speaker A: Yeah.
[00:09:47] Speaker B: Um, so the. I, so the fundamental takeaway to me, Bill, is if I'm, If I'm an ethics and compliance officer at a company, you need to look seriously at three things.
What does your policy language say about the use of confidential information?
And, and do you specifically call out the fact that it is a violation of your policy to use confidential information to personally profit? It's not. This is not technically insider trading. So for everybody out there listening who's like, oh, I'm going to go run and check my insider trading policy. It's not the right place for.
[00:10:19] Speaker A: Yes.
[00:10:19] Speaker B: Not that you want to put it in your, you want to put it in your code, you want to put it in your confidential information policy. You want to put it somewhere where people understand that this is a, this is a, an issue associated with your, your, Your confidential company information. The information you have access to as part of your job.
The second thing you want to do is you really want to have a conversation with your employees about why this is a bad, this is a bad thing for them, about why this is a bad thing for the company. And then the third thing you need to do is you need to start to monitor because if your company name is showing up on one of these platforms, that means there's traffic happening around something that you are as an organization are doing and you need to be keeping an eye on that.
[00:11:04] Speaker A: Yeah. Now if we can double back to that second point you raised about having that conversation within an organization. Like when I, when I'm, I, I've spent a lot of time thinking about these markets, especially like how they, how they get marketed, how people talk about them in social media and, and you know, it reminds me of, gosh, this is an episode you and I did a while ago, may have been a webinar talking about like emerging. It was, I forget which risk we're talking about. Basically the point was, was you said everybody out there in the ENC world, relax, you've got this, you've actually done this before. Right.
And so around the permissiveness of the use of inside information on prediction markets, it strikes me as like the slipperiness of, it strikes to me, seems like it's, it's, it's, it's in part about this notion of, well, I'm not actually harming anything. Right. If I'm, you know, I'm going to bet on the outcome of my own election because I personally have a stake in the election results if I'm betting on it or if I'm not, so what's the harm? Right?
And that's a, that's a, that's a dangerously seductive line of reasoning. But that's also the kind of thing, that same kind of thinking is often what comes up in bribery conversations. Right. You know, you know, is it really hurting anybody? And to that point I would say ENC leaders kind of have the language to discuss this, I think kind of halfway in hand already because they've, they've had to address similar kinds of thinking and similar kinds of resistance to regulation on, on more ABAC facing perils.
[00:12:26] Speaker B: Yeah, it's interesting, Bill. I think that's a fair point. And then the other thing I would offer is, is, you know, for those of you who are thinking about this in the context of the insider trading material, non public information controls that you've put in place, it's a very similar exercise. You have to go through now. But your group of people who will have information that would be of interest to the markets is bigger. So we've all, you know, if you're publicly traded or if you're, you know, an organization that works with a lot of publicly traded companies as a supplier, potentially you've had this, you know, don't use material, non public information, don't tip conversation with your employees already. This is just, you have to do something similar in using broader, a broader audience group because there are more people who will have access to information that is of interest to the, the prediction markets.
And then the second thing is, if you're a private company, if you're PE backed, if you're family owned, you probably haven't had this insider trading conversation with your employees because you haven't had to. You need to have that conversation now because whether you're publicly traded or privately held, if the market thinks there's something interesting happening with your business, the market is going to offer your employees an incentive to put their money where their knowledge is. And you need to keep an eye on that.
[00:13:43] Speaker A: Yeah. Yeah. Now, when we do at the Cash reacts, a lot of the stories that come our way are surfaced through this Slack channel we have here at Ethisphere called Ear to the Ground. And when you and I talk about this at events, we encourage companies you should come up with your own Ear to the Ground mechanism just so you can kind of crowdsource relevant news, relevant stories that you might want to talk about.
So a lot of the stories we have come, you know, Tattocast reacts come through that channel.
But, but there's also the separate channel that you and I have with each other as we pass news stories back and forth. And oftentimes when a news story breaks, I feel like this, this quiet little like race, like, can I get the story to Erica before she gets it to me? You know, and I would say more often than not, you beat me to the punch. You're, you're awfully quick on these things. So this next piece, I want to talk about the, the Charles de Gaulle airport thing because that's something that you definitely beat me to the punch on. In fact, the fact when you told me about this, I had to kind of blink and rub my eyes for a second and then go to Google and read up real quick before I could even talk about it because I couldn't believe what I was reading.
But the investigation around the suspicious Charles de Gaulle weather bets and the tampering with weather equipment, I mean, illustrates A new vector of risk for the abuse of inside information. Kalshi and Polymarket are encouraging outright bans of insider trading on their platforms. But economists note that inside information is why these platforms exist in the first place. So, Erica, my question for you is, do you see a regulatory solution here that preserves prediction markets as a business model, the security of inside information and the, you know, and sufficiently deals with the temptation to cause real world risks in order to alter a bed?
[00:15:20] Speaker B: I think we will see some attempts, Bill, I do. I think we will see some attempts at a regulatory solution.
But I think, as is often the case with these kinds of issues, those regulatory solutions are going to chase the problem as opposed to solving. So it's going to be, you know, for example, the Senate ban. Well, we haven't seen something similar in the House.
The White House has reminded members of the federal government that it is a violation to use confidential information, but they have not gone any further than that. And so it is going to be, I think, a little bit of a patchwork quilt of attempts to resolve some of these things. But if you look at the reaction that Kelshi and Polymarket had to what the Senate did, which was basically to, to, to celebrate the Senate passing this unanimous resolution saying you're not allowed to do this, I think the markets understand that this is a real issue for them. The markets understand that if I feel like this is just like the, you know, the casino where the House money always wins, you're going to struggle to grow with the ambitions that the prediction markets have to grow. And so I think what we're going to, what we're far more likely to see, as opposed to a regulatory response, is going to be a response, a combination of company policy and company monitoring. So it's going to be this combination of Kelshi standards, Polymarket standards. Robinhood is, has a prediction market. Robinhood standards. Right.
Combined with companies themselves and institutions themselves starting to monitor some of this activity and flag things that are of a concern to them. And, you know, the flip side to the Charles de Gaulle airport story is the people who noticed something was off here were the weather nerds.
Celebrate the weather nerds. Right. Like, there were people who are really into these readings who looked at this data and said, something's fishy.
[00:17:30] Speaker A: Yeah.
[00:17:30] Speaker B: And they actually referred it to the French police who then, you know, started the process of looking into this issue.
So I think there's also an element of self policing that we will end up seeing here where the people who are putting money on the outcome of These things care about the integrity of the contracts they are trading and care about the integrity of the information they're doing so on. So far more likely than some sort of government regulation approach. I think what we're going to see is some combination of company plus company monitoring plus the actual audience itself kind of self policing a little bit more than any kind of regulatory, meaningful regulatory response.
[00:18:18] Speaker A: Yeah. Well, I love the fact that weather nerds actually are the ones who picked up on the situation at the airport.
[00:18:22] Speaker B: All hail the weather nerds.
[00:18:23] Speaker A: All hail the weather nerds. You know, there is no niche interest too small for there not be a dedicated cadre of folks who will obsessively monitor all data trends on it and will be able to give you a real truthful reading on what's actually happening there.
That is a, that is a function of modern society. And I think to anybody, anybody, any bad actor out there, you should probably really keep the nerds in mind because they will bust you like almost every, almost every time.
But, you know, but that, that brings me to the next question I want to talk to you about. Not saying, not saying that people follow sports are nerds, but the obsessive attention to detail within sports is, is, is all on the very same thing. And as I prepared this, you know, this interview with you about Texas Tech quarterback Brendan Sorsby violating betting rules, of course he jeopardizes college football elability. We, there's the very, there's the very unfortunate aspect of the gambling addiction thing here. But as I was pulling that information together, the NCAA released updates on two more sports betting violation investigations, right? This time involving former college basketball players being paid to lose games.
So, you know, it's like within the ncaa, this seems to be an issue that's developing faster than we can actually talk about it.
And the convergence of sports betting and college athletics, especially by way of prediction markets, has given rise to specialized compliance tools specifically for helping people prevent accidentally violating the NCAA betting rules.
But is this, is this really a matter of having sufficient compliance training and facilitation, or is this more a matter of ethical culture development as the true way to kind of prevent problems from arising?
[00:19:57] Speaker B: I, you know, this one, this one saddens me, Bill, in so many ways because again, if I go to that balance of incentives on either side of the equation, and it's the combination of the incentives plus the lack of friction in order to be able to engage in this activity. It used to be if you wanted to bet on something like this, it was not easy, you know, that it was, it required a certain level of effort in order to be able to do that. We have taken so much of the friction out of the process of gambling, and the result of that is stories like this, right. Where people have been unable to keep themselves from participating in something, even knowing the potential impact it can have on their future.
And that potential impact on their future could be a situation like this where now, you know, this, this poor kid's eligibility is at stake.
[00:21:01] Speaker A: Yeah.
[00:21:01] Speaker B: It could be the wave of bankruptcies that we're seeing amongst young men in particular who are losing everything to, to the, to the gambling apps.
We've got to find a way to put some sand in the process so that people have a moment to ask themselves whether or not this is something they really want to do. Right now. It is everywhere and easy. And we're seeing the impact of that, unfortunately, because when you, when you put, when you, when you, when you, when you have this Delta between the thing I know I should do and the thing I, I have, I can easily do right now, too many of us are going to choose the thing we can easily do right now. And so if I take this to a, you know, kind of company ethics and compliance lens, I want you all to think about where are those places in my organization where so much of the friction between me and the, and the, the choice I don't want you to be making has been removed such that you're going to make a choice that you're going to regret because the, The. The thing you are g. Literally gambling with is not, Is not front of mind enough to stop you from going down that road.
Same thing with this, with this army soldier. Right. Who's now been been charged with betting on the Maduro raid.
He was adult. He was Delta Force.
He worked his tail off to get to be Delta Force.
[00:22:33] Speaker A: Yeah.
[00:22:34] Speaker B: Right. And.
And yet he saw the opportunity to make a half a million dollars and he took it.
[00:22:42] Speaker A: Yeah.
[00:22:44] Speaker B: And he's gonna live with those consequences.
[00:22:46] Speaker A: Yeah.
[00:22:47] Speaker B: You know, as, as, you know, as, as they play out and, you know, I think we, I think so. I think as leader, as compliance professionals in particular, the thing we have to do is we have to try to think about what are. What, what is that version of someone who can see what they have in the future and is still choosing the short term. What does that look like?
[00:23:13] Speaker A: Yeah.
[00:23:14] Speaker B: For. For our organization. What does that look like here? Yeah, that's the thing to take out of. Out of the, The Sourceby story, aside from just. It's. It's A really sad story.
[00:23:24] Speaker A: Yeah, yeah, yeah. And I mean, to me it seems like it really faces towards how culture is very much a big, big, big piece of the solution here. Because looking at just the, at the number of, the number of reports NCAA has on sports betting violations, you know, you know, relative to the number of athletes who are out there, you know, they like to point to. Yes, you know, you know, actually the number of violations is going down, but it's still a rather, rather high number. And, and one kind of gets a sense that like amongst those who are willing to jeopardize their careers betting, it's a bit like that, you know, you ever see documentaries about the Serengeti migration? There's this like, river where the wildebeest will have to cross and they're like crocodiles hanging out in the river. And it's like, not all of us are going to make it. Most of us will, but a couple unfortunate ones aren't aren't going to. And basically it's the wildebeest thing of like, well, it's not going to be me. I'll just go ahead, cross, right?
[00:24:09] Speaker B: Yeah.
[00:24:10] Speaker A: And I can't help but think that there's a lot of that happening on the sports betting side of things because as you said, because the friction is so, is so non present, you know, these technologies being advertised like, hey, do you have three minutes? Why not use that to get gamble instead? And that's a very, very, very difficult gravity well to stay out of, you know, so, and this does strike me as, I mean, you know, you applaud when, when compliance works as it ought to, when investigations work as they ought to. But this strikes me as a problem that's perhaps bigger than, than the pure compliance side of this. And this is really a matter of, you know, getting the culture out in front of the issue. So people don't want to engage in a way that jeopardizes themselves, jeopardizes their organization, jeopardizes things they can't even imagine.
I'm sure the people who were futzing with the weather sensors at the airport weren't thinking about, oh gosh, I could have actually helped, you know, crash a plane. I think they're just thinking, I'm going to make a couple extra bucks, you know, and, and that's, that's the, that's the, the real pernicious nature of the risk is that we're not even aware of the risk we're creating through this. And that's, that's a pretty difficult situation.
[00:25:06] Speaker B: So, yeah, yeah, no, for sure. And, you know, I mean, Bill, I think just to kind of put a, Put a wrapper on the, the expansion of the risks because, you know, we spend a lot of time thinking about, like, the likelihood of a risk, the impact of a risk, and then what are my mitigation practices? What, like, what can I do to mitigate this particular risk? And so the thing that I would encourage everyone to think about is that the existence of the prediction markets exacerbates the likelihood of something happening from a risk perspective. And as an example, I will. I will offer the fact that There are currently 13 contracts available on Polymarket's, you know, first page of the acquisitions subsection of Polymarket. So there are people out there offering contracts on all kinds of potential corporate combinations.
Think about who in your organization might have that information, and then think about who outside of your organization might have that information. And have you had the conversation with, with bankers and with law firms and with, you know, the filing organizations to make sure that everyone is not profiting off of the fact that they might have this information? The, the thing we have done with the creation of these prediction markets is, yes, we have demo. We have arguably democratized the flow of information.
We have also democratized people's ability to access profit in improperly based on information that they know.
[00:26:31] Speaker A: Yeah.
[00:26:33] Speaker B: And we are now living with the consequences of that.
[00:26:36] Speaker A: Indeed we are. Well, Erica, I sure appreciate you coming on the show to talk about these things.
The journalist in me is very, very excited to have this conversation with you. The human in me is very sad to recognize the fact that this probably won't be the last time you and I get together to talk about this, but really appreciate your insights on the notion of perverse risk, on the notions of how people can actually prevent this and how they can mitigate this going forward. So once again, thank you so much for coming on the show and talking with us today.
[00:27:00] Speaker B: Yeah, no, Bill, it's 100% my pleasure. And you know, I, I'm really glad that we decided to schedule the show for after the Senate passed its. The. The unanimous resolution banning this kind of behavior on the part of. Of senators and members of their staff because we can at least end on a good Note.
[00:27:19] Speaker A: Yeah, right.
100%.
[00:27:21] Speaker B: We saw one control be put in that, that, that applies pretty broadly across the board. And, and we are seeing, you know, these organizations are trying to figure out how to put some controls in as well, but they're going to need help.
[00:27:35] Speaker A: Yeah, yeah. Well, to learn more about all the topics we just covered in this episode. We will provide links to news stories on all these things in this episode's show Notes. And for plenty of free ethics and compliance resources on conflicts of interest, insider information, and more, please visit the at the Sphere resource
[email protected] resources to appear as a guest on this program and share an ethics and compliance best practice or success story, drop us a
[email protected] ethicast we would love to hear from you. Thanks for joining us. We hope you've enjoyed the program. For new episodes each week, be sure to subscribe to us on YouTube, Apple Podcasts, and Spotify. And if you don't mind, please share us with a colleague as well. It really helps out. That's all for now, but until next time, remember, strong ethics is good business.
[00:28:28] Speaker B: Sam.
