By: ChandlerZ, Foresight News
According to reports from Bloomberg and CNBC citing informed sources, the U.S. Commodity Futures Trading Commission (CFTC) is conducting a broad investigation into prediction market platform Polymarket. The scope of the investigation covers the platform's exposed fake trading videos, falsified winning records, undisclosed paid promotions, and related social media activities.
On the same day, the National Association of Consumer Advocates (NACA) filed a lawsuit against Polymarket, CEO Shayne Coplan, and CMO Matthew Modabber in the Superior Court of the District of Columbia, accusing them of using multi-layered tactics to target college students with deceptive advertisements.
This marks the first federal-level formal review of Polymarket since its CFTC-approved return to the U.S. market in September 2025, and it is also the first high-profile investigation into a prediction market platform launched by current CFTC Chairman Michael Selig since taking office.
Faked Trades, Clone Websites, 1105 Videos
The direct trigger for the CFTC's investigation was an investigative report published by The Wall Street Journal in June. The report exposed a systematic marketing fraud operation by Polymarket, pointing to the platform hiring dozens of content creators, primarily college students, paying them $2,000 to $3,000 per month to post seemingly authentic videos on social media showing profitable trades. All creators were required not to disclose their paid relationship with the platform.
The trades shown in these videos were entirely fabricated. Polymarket set up multiple clone websites highly similar to the official platform for creators to use for filming, one with the domain poiymarket.com (replacing the letter 'l' with 'i'). The Wall Street Journal reviewed 1105 videos posted by 10 creators from December 2025 to mid-May 2026. Approximately 70% of the videos featured betting scenes, involving about $1.9 million, but not a single trade was executed on the real platform. In 118 videos, creators displayed a total of about $900,000 in "profits," but the report verified that the same positions, if executed on the real platform, would have resulted in losses exceeding $166,000. These videos accumulated over 140 million views and played a key role in Polymarket's user growth.
This discovery directly triggered a response at the congressional level. Republican Senator John Curtis and Democratic Senator Adam Schiff jointly sent a letter to CFTC Chairman Selig, characterizing the behavior exposed in the report as "deeply disturbing" and stating that "the public behavior presented here looks nothing like a serious financial market designed for hedging or price discovery."
The two senators requested Selig to respond in writing by July 10th on whether the CFTC has already launched an investigation into Polymarket, whether it is legal for prediction market operators to use simulated trades or fake websites in promotions, and whether the CFTC has sufficient authority and resources to fulfill its consumer protection duties, among other questions.
The Bloomberg report further indicated that the scope of the CFTC investigation has expanded from advertising disclosure issues to the social media activities themselves associated with Polymarket, suggesting that regulators are likely examining not just advertising compliance but also the platform's potential manipulation of market behavior on social media.
The CMO's Personal PayPal, Over 800 Transfers, Campus Grassroots Promotions
Beyond marketing fraud, the payment channels themselves constitute a separate line of investigation. According to POLITICO, Polymarket Chief Marketing Officer Matthew Modabber transferred over $2.5 million to more than 800 people through a personal PayPal account registered under an email associated with a salad shop he co-founded, between January 2025 and February 2026. At least $350,000 of that flowed to content creators and political influencers.
On-chain and social media records show that at least 24 influencers published over 490 Polymarket-related tweets after receiving payments, none labeled as paid promotions. Specific cases include political activist Riley Gaines receiving at least $6,000 and posting a screenshot of a Polymarket panel on platform X without any sponsorship identifier; commentator Brian Krassenstein received $9,300 and also failed to disclose.
These practices violate U.S. Federal Trade Commission (FTC) rules requiring clear labeling of paid endorsements. Former FTC officials stated that such relationships typically require disclosure of payment.
Polymarket's promotional reach also extended offline to college campuses. According to court filings, Polymarket collaborated with campus marketing company CampusGTM to conduct grassroots promotion activities on multiple university campuses, promoting the platform through student organizations and fraternities. Students participating in promotions could receive $500 to $2,000 per event. These campus promotions were also not labeled as paid collaborations. In its complaint, the consumer rights group NACA pointed out that Polymarket also used promotional materials featuring influencers like Logan Paul, who appeal to the college student demographic, constituting a "multi-level manipulation system" specifically targeting young people.
On June 26th, NACA formally sued Polymarket, Coplan, and Modabber in the District of Columbia Superior Court, alleging three counts of deceptive marketing and unfair promotion. It requested the court to issue an injunction to halt the aforementioned actions and sought unspecified amounts in damages and equitable restitution.
The CFTC's Test of Stance: Nine-State Lawsuit, Bipartisan Pressure, Its Own Poster Child in Trouble
The current investigation places the CFTC in an extremely delicate position. Chairman Selig has been the most active policy advocate for prediction markets since taking office, and Polymarket is the poster child of this policy direction.
In recent months, the CFTC has even proactively sued state governments attempting to regulate prediction markets under gambling laws. It has currently filed federal lawsuits against nine states including Kentucky, New Mexico, Arizona, Connecticut, Illinois, New York, Minnesota, Rhode Island, and Wisconsin, asserting that federal law (the Dodd-Frank Act) grants the CFTC exclusive jurisdiction over event contracts, and states have no authority to classify prediction markets as gambling and impose regulations. Legal experts believe this jurisdictional dispute could reach the Supreme Court as early as next year.
Simultaneously, 17 Democratic senators have proposed a motion to prohibit the CFTC from using federal funds to sue state governments to protect prediction market operations. Curtis and Schiff, in their letter, directly questioned the CFTC's capability as a federal gambling regulator, pointing out that prediction markets increasingly resemble gambling, and whether the CFTC possesses the consumer protection resources and experience typically provided by state and tribal-level gambling regulators is worth scrutiny.
The core contradiction Selig faces is that he is defending the legality of prediction markets in federal court, suing state governments that classify them as gambling, while his poster child, Polymarket, is now under investigation by his own agency for fraudulent marketing, faked trades, and undisclosed paid promotions.
This means the CFTC must simultaneously play the dual roles of protector and enforcer for prediction markets, with unprecedented tension between the two.
Adding to the situation, the day before the CFTC investigation was reported, Polymarket experienced a supply chain attack. On June 25th, attackers breached a third-party front-end code supplier used by Polymarket, injecting malicious JavaScript code into the platform's website. When users visited the legitimate Polymarket website and connected their wallets, the malicious script would trick them into signing authorization transactions, thereby draining their pUSD (Polymarket's dollar-pegged token) balances. A total of 11 user wallets were emptied. The stolen funds were bridged from the Polygon network to the Ethereum mainnet, converted into approximately 1,893 ETH (about $3.1 million), and sent to a single address controlled by the attacker.
Polymarket stated that it identified the vulnerability and removed the affected dependency within 15 minutes of the first public report, promising full refunds to affected users, but did not disclose the name of the supplier involved. Security firm Halborn's post-incident analysis indicated that the attack did not exploit a vulnerability in Polymarket's smart contracts themselves; the on-chain protocol functioned as designed, with the problem lying in the trust transfer within the front-end supply chain.
Polymarket's History with the CFTC
The relationship between Polymarket and U.S. regulators can most accurately be described as "repeated entanglement."
The company's first major incident occurred in January 2022, when the CFTC brought charges against its operating entity Blockratize Inc., determining that it was offering off-exchange event contract binary options trading without registering as a designated contract market. The parties reached a settlement, with Polymarket paying a $1.4 million fine and agreeing to block U.S. users. From then on, Polymarket operated in a "grey area" in the U.S., primarily serving overseas users. However, the platform gained significant fame during the 2024 U.S. presidential election for accurately predicting Trump's victory, with its odds frequently cited by major mainstream media outlets.
In 2025, following the Trump administration's systematic rollback of Biden-era enforcement actions against the crypto industry, Polymarket was one of the beneficiaries. In July 2025, the DOJ and CFTC both notified Polymarket that their respective investigations had been closed with no charges filed. Two months later, in September, the CFTC approved Polymarket's return to the U.S. market through subsidiaries QCX LLC (a designated contract market) and QC Clearing LLC (a derivatives clearing organization), ending the three-year ban. In December, Polymarket officially launched its U.S. version app.
Capital flowed in subsequently. In October 2025, Intercontinental Exchange (ICE), the parent company of the NYSE, invested $2 billion in Polymarket, valuing the company at $9 billion. The 27-year-old Coplan briefly held the title of "world's youngest self-made billionaire." Competitor Kalshi, around the same time, completed a $1 billion funding round at an $11 billion valuation, with its valuation now reaching $22 billion and preparing for a new round of financing at a $40 billion valuation. Prediction markets leaped from a regulatory grey area to a hot asset class on Wall Street in less than a year.
But less than nine months after returning to the U.S. market, Polymarket is once again on the CFTC's investigation list. The conclusion of the previous investigation was built on a political cycle shift; this round's problems stem from the platform's own actions. Marketing fraud, federal investigation, congressional pressure, civil lawsuits, and a hacker attack have erupted in quick succession, suggesting Polymarket may be facing its most severe multi-front crisis since its founding.
