Google engineer charged after making $1.2 million on Polymarket bets - showing insider trading is becoming everyone's problem

By Gordon Gottsegen

Prediction markets have an insider-trading problem that one-off cases might not solve

A Google software engineer allegedly placed bets on Google search trends using non-public information

On Wednesday night, the Federal Bureau of Investigation and the U.S. attorney for the Southern District of New York charged Michele Spagnuolo, a Google software engineer based out of Switzerland, with commodities fraud, wire fraud and money laundering after Spagnuolo allegedly placed $2.75 million worth of bets on prediction-market website Polymarket.

Spagnuolo was linked to the Polymarket account "AlphaRacoon," which had placed multiple prediction=market bets tied to Google (GOOGL) (GOOG) search trends - such as "Will Pope Leo XIV be the #1 searched person on Google this year," "Will d4vd be the #1 searched person on Google this year" and "Will Bianca Censori be the #1 searched person on Google this year." These bets were all made with remarkable accuracy, netting the Polymarket account over $1.2 million in profit, according to court documents.

Spagnuolo didn't immediately respond to an email asking for comment.

This isn't the first time that federal charges have been brought against a Polymarket bettor over insider trading - U.S. soldier Gannon Ken Van Dyke was recently arrested after allegedly making bets on the military capture of Venezuelan leader Nicolás Maduro - and it may not be the last.

Amanda Fischer, the policy director of advocacy group Better Markets and former chief of staff at the U.S. Securities and Exchange Commission, lauded law enforcement and federal regulators for taking action. However, she said that these individual cases point to a structural insider-trading problem within prediction markets.

"I think that these one-off charges that law enforcement is bringing, rather than underscoring that the market is well policed, underscores how few cases are brought given how much abhorrent outsized profits we see," Fischer said. "I think it also underscores just how ripe for insider trading many of these markets are."

Fischer said she believes that there is "way more" insider trading and misappropriation in these markets than law enforcement is able to catch. As a result, this also puts a strain on federal regulators like the Commodity Futures Trading Commission, which are charged with helping to stop insider trading. This takes regulatory resources away from policing other markets, whether that's crypto or oil futures, Fischer noted.

Also read: Traders point to suspicious activity in the oil market on Wednesday

Platforms like Polymarket - which has a data partnership with MarketWatch's parent company Dow Jones - can help chip in with enforcement. Polymarket said it assisted with the investigation into the Google engineer.

"Blockchain trading is transparent, traceable and bad actors leave footprints. We are committed to maintaining accurate, fair and transparent markets as well as enforcing our rules and working with our regulators and law enforcement," a Polymarket spokesperson told MarketWatch.

However, the insider-trading problem within prediction markets is spreading to burden other organizations too. Google told MarketWatch that it is working with law enforcement on the investigation, since its employee allegedly used confidential corporate information to bet.

"The employee accessed our marketing material using a tool available to all employees, but using such confidential information to place bets is a serious breach of our policies. We've placed the employee on leave and will take the appropriate action," a Google spokesperson said.

Public companies have protocols for who gets access to material nonpublic information, because that information can be used to insider trade in the stock market. But prediction markets allow traders to bet on all sorts of markets that are much wider in scope. This makes it harder for companies to know what information is "material" and how to limit access to it, Fischer said.

"All of a sudden, if you're a corporation, you have to impose all these new restrictions on your employees, and contemplate every single bit of data in your firm that could be monetized on a prediction market," she said.

Fischer added that companies now have to implement trading policies that extend to prediction markets, though such policies often aren't airtight. On top of that, new prediction markets can pop up on just about anything, opening the door for insider trading on information that wasn't previously considered material. For example, Kalshi caught a video editor for the MrBeast YouTube channel placing prediction-market bets on video length.

"It's a lot of headache for what I think is very limited utility," Fischer said.

-Gordon Gottsegen

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