Regulatory investigations, civil lawsuits, congressional pressure, and hacking attacks erupted in June
Written by: ChandlerZ, Foresight News
According to Bloomberg and CNBC citing people familiar with the matter, the U.S. Commodity Futures Trading Commission (CFTC) is conducting a wide-ranging investigation into prediction market platform Polymarket. The probe covers the platform’s exposed fake transaction videos, false winning records, undisclosed paid promotions, and related social media activities.
On the same day, the U.S. consumer rights group NACA filed a lawsuit against Polymarket, CEO Shayne Coplan, and CMO Matthew Modabber in the District of Columbia Superior Court, accusing them of using multi-layered tactics to deliver deceptive ads to college students.
This marks the first formal federal scrutiny of Polymarket since it was approved by the CFTC to re-enter the U.S. market in September 2025, and the first high-profile investigation into a prediction market platform launched by current CFTC Chairman Michael Selig since taking office.
Fake Transactions, Cloned Websites, 1,105 Videos
The direct trigger for the CFTC’s investigation is an investigative report published by The Wall Street Journal in June. The report exposed Polymarket’s systematic marketing fraud: the platform hired dozens of content creators (mostly college students) and paid them $2,000 to $3,000 monthly to post seemingly real transaction profit videos on social media. All creators were required not to disclose their paid relationship with the platform.
All transactions shown in these videos are fake. Polymarket built multiple cloned websites nearly identical to its official platform for creators to use in filming—one domain being poiymarket.com (replacing the letter "l" with "i"). The Wall Street Journal reviewed 1,105 videos posted by 10 creators between December 2025 and mid-May 2026: about 70% contained betting scenes involving ~$1.9 million, but none of these transactions were executed on the real platform. In 118 videos, creators showed total "profits" of ~$900,000, but the report verified that the same positions on the real platform would have resulted in actual losses exceeding $166,000. These videos accumulated over 140 million views and played a key role in Polymarket’s user growth.
This finding triggered a congressional response: Republican Senator John Curtis and Democratic Senator Adam Schiff jointly sent a letter to CFTC Chairman Selig, describing the exposed behavior as "deeply disturbing" and stating, "The public conduct presented here does not look at all like a serious financial market designed for hedging or price discovery."
The senators demanded Selig respond in writing by July 10 to questions including whether the CFTC has launched an investigation into Polymarket, whether prediction market operators can legally use simulated transactions or fake websites in promotions, and whether the CFTC has sufficient authority and resources to fulfill consumer protection duties.
Bloomberg’s report further noted that the CFTC’s probe has expanded from advertising disclosure issues to Polymarket’s social media activities themselves—meaning regulators may be examining not just advertising compliance, but potential manipulation of market behavior via social media.
CMO’s Personal PayPal, Transfers to 800+ People, Campus Promotions
Beyond marketing fraud, the payment channel itself is an independent investigative lead. According to POLITICO, Polymarket CMO Matthew Modabber transferred over $2.5 million to more than 800 people via a personal PayPal account registered under the email of a salad shop he co-founded between January 2025 and February 2026. At least $350,000 went to content creators and political KOLs.
On-chain and social media records show that at least 24 KOLs posted over 490 Polymarket-related tweets after receiving payments—none labeled as paid promotions. Specific cases: political activist Riley Gaines received at least $6,000 and posted a Polymarket panel screenshot on X without any sponsorship label; commentator Brian Krassenstein received $9,300 and also failed to disclose the payment.
These practices violate FTC regulations requiring clear labeling of paid endorsements. A former FTC official noted that such behaviors typically require disclosure of paid relationships.
Polymarket’s promotions also extended to offline campuses. Lawsuit documents reveal it partnered with campus marketing firm CampusGTM to run ground campaigns at multiple universities via student organizations and fraternities, paying students $500-$2,000 per event. These campus promotions were also unlabeled as paid collaborations. NACA’s complaint alleges Polymarket used materials from influencers like Logan Paul (popular with college students) to form a "multi-layered manipulation system" targeting young people.
On June 26, NACA filed formal charges against Polymarket, Coplan, and Modabber in D.C. Superior Court, alleging three counts of deceptive marketing and unfair promotion. It seeks an injunction to stop the conduct, plus unspecified damages and equitable restitution.
CFTC’s Position Test: 9-State Lawsuits, Bipartisan Pressure, Its Benchmark in Trouble
The current investigation puts the CFTC in a delicate position: Chairman Selig has been the most vocal advocate for prediction markets since taking office, and Polymarket is the benchmark case for this policy direction.
In recent months, the CFTC even sued state governments that tried to regulate prediction markets under gambling laws. It has filed federal lawsuits against 9 states (Kentucky, New Mexico, Arizona, Connecticut, Illinois, New York, Minnesota, Rhode Island, Wisconsin), arguing the Dodd-Frank Act gives it exclusive jurisdiction over event contracts—states cannot classify prediction markets as gambling. Legal experts say this jurisdiction dispute could reach the Supreme Court as early as next year.
Meanwhile, 17 Democratic senators proposed a motion to ban the CFTC from using federal funds to sue states over prediction market operations. Curtis and Schiff’s letter directly questioned the CFTC’s ability as a federal gambling regulator: prediction markets are increasingly like gambling, and whether the CFTC has the consumer protection resources/experience of state/tribal gambling regulators is worth examining.
Selig’s core contradiction: he is defending prediction markets’ legality in federal courts (suing states that call them gambling), but his benchmark case Polymarket is now under his agency’s investigation for fraudulent marketing, fake transactions, and undisclosed paid promotions.
This means the CFTC must act as both protector and enforcer of prediction markets—an unprecedented tension.
The day before the CFTC investigation was reported, Polymarket suffered a supply chain attack. On June 25, attackers hacked a third-party front-end code supplier used by Polymarket and injected malicious JavaScript into its website. When users visited the legitimate site and connected their wallets, the script tricked them into signing transactions that emptied their pUSD (Polymarket’s dollar-pegged token) balances. 11 wallets were drained; stolen funds were bridged from Polygon to Ethereum, converted to ~1,893 ETH ($3.1 million), and sent to a single attacker address.
Polymarket stated it identified the vulnerability and removed affected dependencies within 15 minutes of the first public report, promising full refunds to victims but not disclosing the supplier’s name. Security firm Halborn’s post-incident analysis found no smart contract vulnerabilities—on-chain protocols worked as designed; the issue lay in the front-end supply chain’s trust transfer.
Polymarket Is Not New to CFTC Scrutiny
The relationship between Polymarket and U.S. regulators is best described as "repeated entanglement."
Its first trouble came in January 2022: the CFTC charged its operating entity Blockratize Inc. with offering over-the-counter event contract binary options without registering as a designated contract market. The two sides settled: Polymarket paid a $1.4 million fine and promised to block U.S. users. Since then, it operated "underground" in the U.S., serving overseas users—but gained fame during the 2024 U.S. election for accurately predicting Trump’s victory, with its odds cited by major media.
In 2025, the Trump administration systematically rolled back Biden-era crypto enforcement, and Polymarket benefited. In July 2025, the DOJ and CFTC notified Polymarket their investigations were closed without charges. Two months later, the CFTC approved Polymarket’s return to the U.S. via subsidiaries QCX LLC (designated contract market) and QC Clearing LLC (derivatives clearing organization), ending the 3-year ban. In December, it launched its U.S. app.
Capital poured in: ICE (NYSE parent) invested $2 billion in Polymarket in October 2025, valuing it at $9 billion. 27-year-old Coplan briefly held the title of "world’s youngest self-made billionaire." Competitor Kalshi raised $1 billion at an $11 billion valuation around the same time; it now has a $22 billion valuation and is preparing a new round at $40 billion. Prediction markets jumped from a regulatory gray area to a Wall Street hot asset class in less than a year.
But less than 9 months after returning to the U.S., Polymarket is back on the CFTC’s investigation list. The previous probe ended due to a political cycle shift—this time, the problem lies in the platform’s own actions. Marketing fraud, federal investigations, congressional pressure, civil lawsuits, and hacking attacks have erupted recently, leaving Polymarket facing its most severe multi-front crisis since inception.