Prediction Markets Are Creating a New Insider Trading Frontier for Biotech and Pharmaceutical Companies

A Novel Threat

Earlier this year, prediction market platforms began allowing traders to wager on Phase 3 clinical trial outcomes and full FDA approval decisions, and volume climbed quickly. Meanwhile, these platforms have reportedly already flagged at least 140 suspicious accounts trading across all contract types this year, referring many to federal authorities. Predictably, this reality presents a new source of risk for life sciences companies.

For decades, regulators have pursued individuals who unlawfully engaged in stock trades ahead of unannounced trial results or FDA action. Insider trading in public stocks based on key clinical trial results is in fact a common fact pattern and has been the subject of multiple, prominent insider trading prosecutions. Prediction markets now offer a parallel, far less mature venue where the same material nonpublic information, such as an interim data readout, the receipt of a Complete Response Letter or an adverse manufacturing-site inspection finding by the FDA, can be monetized directly, often with a shorter path to cash and a potentially large population of people positioned to trade. 

Prediction markets also open a new risk vector for private life sciences companies. While insider trading was an issue for public companies in the past, with the rise of prediction markets, private companies are now also at risk of their most sensitive clinical information being monetized by employees, contractors, and other key partners. Thus, cutting-edge life sciences companies that have not yet gone public must now grapple with the threat of insider trading.

One of the largest prediction markets now offers contracts such as whether the FDA will approve a particular drug produced by a major pharmaceutical company in a certain timeframe or when a pharmaceutical company will submit a New Drug Application for a particular drug. One of the largest platforms has reportedly contemplated seeking CFTC approval for other bets, including:

• The number of side effects or adverse events that a drug generates, according to the FDA's public tally
• Whether a company will report trial results within a certain period 
• Whether a drug will be withdrawn by the FDA by a certain date

Why Biotech Companies Face Distinctive Exposure

Traditional insider trading policies focus on a defined universe of executives, employees, and directors. Clinical and regulatory data, by contrast, pass through a far wider and harder-to-police population: contract research organizations, central laboratories, data safety monitoring board members, biostatisticians, manufacturing and packaging partners, IRB staff, regulatory consultants, and the family members and associates of anyone in that chain.

Some prediction market platforms explicitly bar company employees, unblinded personnel, and trial participants from trading in their biotech markets, but as commentators have noted, the sheer number of people who touch a clinical trial makes it unrealistic to assume every potential leak will be caught before it moves the market. Additionally, while company executives and employees receive targeted education on insider trading risks, biotechs have little control over the policies and information communicated to other market participants. Furthermore, private companies may not yet have the compliance infrastructure in place to educate and police insider trading. These companies will need to quickly get up the learning curve by instituting robust insider trading policies and training.

Further, because event-contract prices are public and update continuously, an unexplained shift in a contract's implied probability can itself operate as an information leak, alerting sophisticated observers and potentially moving a company's publicly traded stock before the company has made its own disclosure, if any.

A Recent Illustration

On May 27, 2026, the U.S. Attorney's Office for the Southern District of New York charged a Google software engineer with commodities fraud, wire fraud, and money laundering for misappropriating confidential internal company information and trading on it through a prediction market. Prosecutors allege that the engineer had access to Google’s confidential, nonpublic information regarding its “Year in Search” results, which is proprietary and crucial to Google’s marketing and brand strategy. The defendant used his access to place large bets in a prediction market relating to who would be in the top five “most searched people” on Google for 2025, among other similar searches. The trader risked roughly $2.75 million on markets tied to internal search data over a two-month period, generating profits of approximately $1.2 million once that information became public. The CFTC filed a parallel civil complaint charging the engineer with insider trading for violating the Commodity Exchange Act.

The case confirms that this theory reaches ordinary corporate employees with routine access to internal systems, not only executives with access to nonpublic earnings results or information about a major corporate transaction. Material nonpublic information from biotech and pharmaceutical companies can pass through a vast pool of individuals, each with an opportunity to participate in market-moving contracts.

What Companies Can Do Now

• Extend insider trading policies and blackout-period language beyond traditional trades in company stock to expressly cover event contracts on prediction market platforms.
• Add MNPI-trading prohibitions and flow-down obligations addressing prediction market platforms to Contract Research Organization, Contract Manufacturing Organization, central lab, and other vendor agreements.
• For private companies, draft insider trading policies if they do not already exist and proactively educate the workforce about their obligations.
• Update employee and contractor training to correct any misconception that prediction markets fall outside insider trading law and company policies.
• Identify high-risk information that could easily be monetized and ensure that information controls are appropriate and that access is limited to those with a genuine “need to know.”
• Incorporate monitoring of company-linked event contracts into existing disclosure controls and communications review.
• Involve counsel promptly when unusual market activity suggests a possible leak, before making any public statement.

Learn more about Fenwick's white collar and life sciences capabilities.