Prediction markets, like Polymarket and its main rival, Kalshi, have flourished in Trump's second term.

Gabby Jones/AFP via Getty Images Polymarket has investigated "dozens" of bets on its prediction markets related to the midterm election, according to the company's head of global intelligence and investigations, Shana Bautista.

At least two of these Polymarket investigations have been referred to its regulator, the U.S. Commodity Futures Trading Commission, according to a person who is familiar with the probes, but not authorized to speak publicly about them.

These investigations into election insider trading and manipulation come as prediction market Polymarket — and its chief competitor Kalshi — have exploded in popularity over the past year. But the fast-growing industry also faces significant legal challenges from states and political pushback from lawmakers who argue betting on the outcome of elections poses serious risks to the democratic process.

In April, Kalshi banned and fined a handful of political candidates from betting on themselves. A month later, NPR reported that campaign staffers had made "thousands" using insider polling information to bet on their own candidates on platforms like Polymarket and PredictIt.

Polymarket's Bautista — a former FBI official and cryptocurrency analyst — told NPR her team of 16 and a new election surveillance system are actively policing election bets ahead of the Nov. 3 midterms.

"If you have information that you have a duty to protect, don't trade on it," Bautista said. "It's explicitly against our terms of use on both platforms, but also is against the law. If you decide that you are smarter and can do it, we will find you." Bautista joined Polymarket in June. She oversees information gathered from both the U.S.-regulated version of Polymarket, which requires users to provide their real identities, and its bigger brother, Polymarket International, which is essentially unregulated and where trading can be done anonymously and with cryptocurrency. Despite this, Bautista said crypto trades are rarely completely anonymous.

"There's never been a case that we work where we haven't been able to identify, potentially, who these people are," Bautista said.

She said her election surveillance system pulls in "gigabytes" of data on each user from social media, Federal Election Commission data, cryptocurrency companies, banking partners, statistical models and other public information sources. If a user hits a certain number of internally-defined red flags, Bautista gets an alert on her phone. "We're getting hundreds of alerts a day," Bautista said.

When asked about the specific detection criteria and thresholds, Bautista did not comment citing system security. But she said insider trading and market manipulation all look the same regardless of the financial market.

"We're looking at threat vectors and risk areas that have existed for decades in traditional markets," Bautista said. "But we recognize, too, that when it comes to prediction markets, we're seeing some of the old tried and known tactics, but being applied to a new vector through prediction markets." Back in May, Kalshi, Polymarket's top rival, announced its own election surveillance system that also uses FEC data.

Their system purportedly blocks any campaign staffer listed by the FEC from betting on an election. In July, Kalshi said it had blocked "dozens" of staffers from trading on elections, though at least one staffer told NPR they got around this. The staffer shared records of their recent trades and spoke to NPR on the condition of anonymity for fear of consequences for their future employment.

Prediction markets for elections are uniquely vulnerable to market manipulation and insider trading, said Rajiv Sethi, an economics professor at Barnard College at Columbia University, who has studied prediction markets for decades.

"[Election prediction markets] have the possibility of being a self-fulfilling prophecy," Sethi said. "Elections have the property that what one believes is going to happen can actually affect what happens if a candidate is thought to be losing momentum or the campaign is flagging." Bautista said her Polymarket team and surveillance system is learning from past cases and putting their feet in the shoes of would-be insider traders and market manipulators.

"If I was worried about somebody trying to materially move an election market to make it look like one option was more likely to happen than the other and I identify a pattern where they're opening several different accounts and they're doing that in short bursts and I see device IDs consistent across different trades placed in short succession with new wallets across five or four different accounts," Bautista said. "If I were to work that case and then action that, the findings of that tactic go back into the process to create the detections."

As prediction markets have exploded in popularity over the last two years, the industry's federal regulator, the CFTC, has done little to police these new financial markets, largely leaving that work to the companies themselves.