Pentagon Bars Personnel From Trading on Military Information After $400K Prediction Market Scandal
US Defense Secretary Pete Hegseth issued an October 20 memo barring Department of Defense personnel from making financial transactions using non-public information, explicitly naming Polymarket and Kalshi. The directive follows the prosecution of a Special Forces soldier accused of making more than $400,000 on Polymarket by betting on a mission to capture Venezuelan President Nicolas Maduro. Hegseth's rationale is a national-security concern: a bet on a military outcome creates a market signal adversaries can read. 'Our enemies watch movements in these markets,' the memo states.
US Defense Secretary Pete Hegseth issued a memo on October 20, 2026 barring Department of Defense personnel from making financial transactions using non-public information, directly or through third parties, and explicitly naming Polymarket and Kalshi. The memo, obtained by CBS News and DefenseScoop, extends beyond prediction markets to any financial transaction based on non-public information, but the prediction market context is the proximate cause. It follows the prosecution of a Special Forces soldier accused of making more than $400,000 on Polymarket by betting on a mission to capture Venezuelan President Nicolas Maduro — a bet allegedly placed with advance knowledge of a classified operation. Violations may bring administrative, disciplinary, or criminal action under military rules and federal law.
For UK readers, the directive is analogous to the Official Secrets Act and MoD financial-conduct rules combining to prohibit personnel from profiting on operational knowledge — but with a market-signal twist specific to prediction markets. The memo's logic is that a financial transaction on a military outcome does not merely enrich the insider improperly; it creates a market signal adversaries can observe. If prediction market prices on a military operation move sharply before any public announcement, that movement is itself information: it signals that someone with knowledge is positioning, which can tip off an operation's target. 'Our enemies watch movements in these markets,' the memo states. This turns the insider-trading concern from individual misconduct into operational security — the market becomes a channel through which classified information leaks into public view via price movements, whether or not the insider is ever identified.
The concern is not hypothetical. Beyond the Maduro case, reporting noted that newly created Polymarket accounts placed suspiciously timed bets shortly before President Trump announced a US-Iran ceasefire in April, after which the White House warned staff against trading on confidential information. The pattern — sharp, well-timed positioning in geopolitical and military contracts just before public announcements — is exactly what the Hegseth memo is designed to prevent within the Department of Defense. The CFTC, which regulates the platforms, has separately said it is monitoring for manipulation and often catches political figures trading 'after the fact.' A national-security ban from the Pentagon alongside manipulation monitoring from the CFTC reflects growing recognition across government that prediction markets on sensitive government actions create information-security risks that did not previously exist at this scale.
The directive matters because it comes from a part of government with no stake in the commercial or regulatory disputes over the platforms' legal status. The CFTC defends their federal jurisdiction; state attorneys general attack it; the platforms litigate. The Department of Defense has no role in that fight — its concern is purely operational security — which makes its action a more neutral signal about the genuine risks prediction markets on government actions create. It also highlights a contract category that sits uneasily within the platforms' defence of their business: contracts on military operations, geopolitical events, and government decisions are harder to defend as legitimate hedging instruments than economic or financial contracts, and they carry risks — classified-information leakage, operational-security compromise — unrelated to gambling or consumer protection. The platforms have generally not emphasised these categories in their public defence, and the Pentagon's action underscores why: the national-security contracts are where the case for restriction is strongest and least contested.
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Recent updates
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