United States - Market Insights (Securities and Corporate Misconduct)

Introduction

While a shift in federal enforcement priorities under the current administration has resulted in a widely reported downturn in white-collar investigations and prosecutions, investigations into securities and corporate misconduct continue. In this Market Insights piece we highlight three areas that practitioners should monitor in the year to come. First, booming prediction markets are raising novel questions about regulatory oversight and criminal investigations of trading activity in these new markets. Second, while insider trading prosecutions related to so-called rule 10b5-1 plans appear less likely to continue under the current administration, state authorities may continue to investigate and prosecute these cases. And third, a recently announced corporate enforcement policy by the Department of Justice may shape how companies decide whether and when to self-report wrongdoing.

Regulation of prediction markets

Prediction markets — where traders can place bets on almost anything, from sports outcomes to whether the President mentions a particular word in a speech — are massive and growing rapidly. There was USD 1 billion in trading relating to the Super Bowl on Kalshi, including USD 100 million alone on what the first song in Bad Bunny’s halftime performance would be.

With minimal regulation, these relatively new markets are susceptible to trading activity based on non-public information and manipulation. For example, a trader made more than USD 400,000 betting on when Venezuelan President Nicolás Maduro would be deposed — and was later criminally charged for allegedly having wrongfully used classified information he obtained as a US Army soldier. And in what he described as merely a moment of fun as opposed to an attempt to personally benefit, during an earnings call late last year, Coinbase’s CEO Brian Armstrong said a string of crypto-related words at the end of the call, knowing traders in mention markets were placing bets on the words he would use. The more events that are subject to prediction markets, the greater the opportunities for manipulation.

The United States Commodity Futures Trading Commission (CFTC) has asserted that it has exclusive jurisdiction over prediction markets. The CFTC views event contracts as transactions involving swaps, on the grounds that they are contracts dependent on the occurrence of another event, and therefore within its jurisdiction under the Commodity Exchange Act. By characterizing prediction markets’ offerings as transactions involving swaps, the CFTC is attempting to prevent states from regulating these markets under their gambling laws. Indeed, in a video message to those “who seek to challenge [the CFTC’s] authority in this space,” the CFTC’s Chair announced that the Commission would “see you in court” (https://x.com/ChairmanSelig/status/2023744651216240966). Ultimately, courts throughout the country — and potentially the Supreme Court — will determine whether offerings on prediction markets are swaps, subject to the CFTC’s jurisdiction, or bets subject to state gambling regulations. A divided panel of the Third Circuit recently sided with the CFTC, affirming a preliminary injunction in favor of Kalshi after concluding that its argument that the Commodity Exchange Act preempts otherwise applicable state law had a reasonable chance of success. However, multiple states have taken the opposite position: following the CFTC’s claim of jurisdiction, Utah Governor Spencer Cox responded, “I don’t remember the CFTC having authority over the ‘derivative market’ of LeBron James rebounds” (https://x.com/GovCox/status/2023795059980988874). And Arizona’s Attorney General upped the ante by criminally charging Kalshi for allegedly violating the state’s gambling laws, including its blanket prohibition on betting on elections. In response, the CFTC sued Arizona in federal court to bar the prosecution, winning a preliminary injunction.

The CFTC’s efforts to exert exclusive jurisdiction over prediction markets do not necessarily reflect an intent to implement extensive regulatory oversight. On the contrary, the CFTC recently withdrew proposed rules from the Biden Administration that would have prohibited event contracts related to sports and politics. This retraction reflects the CFTC’s stated goal of issuing new rules that “promote[] responsible innovation” (www.cftc.gov/PressRoom/PressReleases/9179-26) for “exciting products” that are beneficial to the American public (www.wsj.com/opinion/states-encroach-on-prediction-markets-6eb43af9). Further, the CFTC published an advance notice of proposed rulemaking, asking for comments on topics including what types of event contracts should be banned on public interest grounds and how it should regulate the use of insider information. In the meantime, the CFTC issued a staff advisory encouraging markets to be “proactive” and ensure “proper surveillance and oversight of trading,” including to prevent manipulation through insider trading (www.cftc.gov/LawRegulation/CFTCStaffLetters/letters.htm).

Congress is also beginning to get involved. Last year, a bipartisan group of seven Senators wrote to the CFTC, expressing concern that it was improperly designating sports betting as within its regulatory authority, and therefore undermining the ability of states and tribes to regulate it. More recently, a group of Democratic Senators asked the CFTC to prohibit event contracts relating to sports, among other topics. And, in a direct response to the trader who won betting on Maduro’s ouster, a group of Democratic House members introduced a bill prohibiting federal employees from insider trading in prediction markets. Further, following the death of Iran’s supreme leader, Kalshi refused to pay out and refunded about USD 50 million in bets on the timing of his fall, explaining that “profiting from death is not allowed on Kalshi” (www.nytimes.com/2026/03/18/world/middleeast/ayatollah-ouster-bets-death.html). Several members of Congress have since proposed amending the Commodity Exchange Act to prohibit contracts involving war or death. These activities show that there may be substantial momentum for legislation relating to — and greater regulation of — prediction markets.

The debate over what prediction markets are, and who should regulate them, has some recent parallels in the cryptocurrency space, where for years regulators have sparred over jurisdictional supremacy. That debate, however, often did not involve the Department of Justice (DOJ). Because regardless of how a digital asset is classified; i.e., whether it is a security, a commodity, or a currency, the DOJ can and does prosecute cryptocurrency fraud using traditional tools such as the wire fraud statute. The same is likely to be true for fraud in the prediction markets. In February 2026, Jay Clayton, the United States Attorney for the Southern District of New York, announced that he expected prosecutions relating to prediction markets: “That’s a crime,” he said, with respect to conspiring to fix a golf game — just “because it’s a prediction market doesn’t insulate you from fraud” (www.law360.com/articles/2438607/sdny-chief-says-office-has-eye-on-prediction-markets).

Given the rapid growth of prediction markets, and the massive amounts of money at issue, practitioners should expect them to be an area of intense government focus moving forward.

Insider trading — rule 10b5-1 plans

There have been significant recent developments involving insider trading investigations relating to rule 10b5-1 plans. Rule 10b5-1 of the Securities Exchange Act of 1934 establishes an affirmative defense against insider trading for corporate executives and board members who create a trading plan — importantly, before they acquire material non-public information. When entered into in good faith, these plans provide a safe harbor for insiders.

In 2023, the DOJ announced its first-ever insider trading prosecution based entirely on trades made pursuant to a rule 10b5-1 plan. In what it described as a “groundbreaking” indictment, the DOJ charged former Ontrak CEO Terren Peizer with insider trading in connection with trades made after not engaging in a 30-day “cooling period” (the time between entering into the plan and selling stock), an industry standard practice that is now required by the Securities and Exchange Commission (SEC). Peizer was ultimately convicted at trial, sentenced to prison, and ordered to pay millions of dollars in fines and forfeiture. However, Peizer received a pardon this year, with little fanfare other than a White House statement that his case was an excessive prosecution. Peizer’s prosecution remains the only reported insider trading case the DOJ has brought for trades based exclusively pursuant to a rule 10b5-1 plan. The lack of subsequent cases, combined with Peizer’s pardon, cast the future of similar federal cases in doubt.

That said, state enforcers may see an opening to use their own tools to investigate and prosecute in this space. For example, in January, New York’s Attorney General sued the former CEO of Emergent BioSolutions for allegedly insider trading using a rule 10b5-1 plan. The Attorney General brought the civil lawsuit under the state’s anti-fraud statute, the Martin Act, which has been little-used in the context of insider trading, creating significant uncertainty over how it will be interpreted by New York courts. The Martin Act’s criminal provisions are enforced by the AG and district attorneys, and Manhattan District Attorney Alvin Bragg has recognized that the Act can be “deploy[ed] to complement other regulators” and prosecute “cases that can’t be brought federally” (www.law.com/newyorklawjournal/2022/02/09/d-a-alvin-bragg-sets-out-white-collar-crime-priorities/).

In sum, while DOJ has not brought additional rule 10b5-1 plan insider trading cases, practitioners should prepare for the possibility that investigations and enforcement will continue by the states and, perhaps at a later date or under a different administration, by the DOJ.

Corporate self-disclosure

On March 10, 2026, the DOJ issued its first-ever corporate enforcement policy for criminal matters. Designed to promote “uniformity, predictability, and fairness” in how DOJ pursues white-collar matters, the policy supersedes any corporate enforcement policies that had been in effect within particular DOJ components or US Attorney’s offices (except for antitrust matters).

Among other things, the policy incentivizes timely and complete self-disclosure by providing that the DOJ will decline criminal prosecution of a company where:

• the company voluntarily self-disclosed the misconduct to an appropriate DOJ criminal component;
• the company fully cooperated with the DOJ’s investigation;
• the company timely and appropriately remediated the misconduct; and
• there are no aggravating circumstances related to the nature and seriousness of the offense, egregiousness or pervasiveness of the misconduct within the company, severity of harm caused by the misconduct, or corporate recidivism, specifically, a criminal adjudication or resolution either within the last five years or otherwise based on similar misconduct by the entity engaged in the current misconduct.

The policy also calls for the DOJ to offer non-prosecution agreements in certain “near-miss” voluntary disclosures, such as when a company timely and appropriately remediated but is nevertheless ineligible for a declination as its self-report “did not qualify as a ‘self-disclosure’.”

It is too early to know how the corporate enforcement policy will be applied in the years to come. But when considering whether, when, and how to self-report misconduct, practitioners should do so in the context of the DOJ’s new policy and its stated goals. And, given that the policy supersedes component or office-specific corporate enforcement policies, they should do so regardless of which DOJ component is leading an investigation.