On Wednesday morning, the FBI raided Polymarket CEO and founder Shayne Coplan’s New York City residence, seizing his phone and electronics. Bloomberg reported that the FBI suspected Coplan’s company of illegally accepting trades from U.S.-based users.
The FBI raid comes during the industry’s victory lap following the 2024 presidential election. Prediction markets correctly forecasted the Electoral College winner, as the two biggest platforms, Polymarket and Kalshi, saw record trading volumes in their election markets.
Kalshi is a regulated derivatives exchange that has worked to offer event contracts legally in the U.S. since its 2018 founding. Polymarket agreed to block U.S. customers from using its platform, following a $1.4 million fine and settlement by the Commodity Futures Trading Commission (CFTC) in 2022.
However, U.S. customers have been known to circumvent Polymarket’s know-your-customer regulations with VPNs. Offering illegal financial trades or gambling services is a likely reason Polymarket and Coplan are under investigation.
As of this writing, the FBI has neither released a statement about the raid nor issued any indictment or indication of wrongdoing against Coplan or Polymarket.
Why the FBI would raid Coplan’s home
When FBI agents seized Coplan’s phone, they got more than a trail of documents. Smartphones are among the most valuable sources of information for criminal investigations.
“By grabbing their phone, you get access to their calendar, to their inbox, all of their apps, everything that’s tracked, everything they do, and all the people they speak to [on] Slack or Whatsapp,” gaming lawyer Jeff Ifrah said. “So it’s much more helpful at trying to pinpoint the issue that they’re trying to focus on, which in this case, I assume, would be the intent to violate U.S. law.”
Polymarket offers contracts on whether events will occur. It’s the same model as Kalshi, but Kalshi built a regulated derivatives exchange and created a new type of derivative recognized by CFTC regulations.
In contrast, Polymarket offers some of the same markets but without the U.S. regulatory framework. Additionally, Polymarket offers markets that openly cross into gambling territory and are not available on Kalshi. For example, Polymarket facilitates wagers on the 2025 Super Bowl winner, which are only allowed in the U.S. under state sports betting law.
Polymarket’s corporate office is also based in Manhattan, NY, home to the U.S. District Court for the Southern District of New York.
Southern District of New York and financial crime
The Southern District of New York is notorious for pursuing illegal gambling and financial fraud cases. In June 2009, the Southern District ordered four banks to freeze over $34 million in funds owed to online poker players. That action was part of a larger investigation into fraud at PokerStars. PokerStars was ordered to forfeit $547 million in assets to repay customers in 2012, and the founder pled guilty to operating an unlawful internet gambling business in 2020.
New York’s Southern District also contains Manhattan, where Wall Street is located. Any financial crime likely flows through Wall Street at some point, making the Southern District a hotpot for financial crime investigations.
It’s a tough jurisdiction for a company that exists on the fine line between finance and gambling.
“Raising attention to yourself…and the news covering your site every single day, because that’s where they’re getting the information about potential election results, I mean, that’s the problem,” Ifrah said. “You don’t want to be doing that when you’re in a gray area.”
Double-edged sword of extensive media coverage
On Oct. 7, Polymarket gained international attention because of an anonymous French trader who would go on to win $85 million on Donald Trump winning the presidential election. This trader’s Oct. 7 transactions single-handedly moved Trump’s price of victory by about four points in an afternoon. A leading media monitoring service found that In the last 90 days, Polymarket received approximately 1.5 million media impressions.
However, Polymarket’s and Kalshi’s prices of Trump victories were similar in the weeks leading up to Election Day.
Both platforms were featured heavily in mainstream election coverage. Coverage of Polymarket focused on this large user, while Kalshi highlighted its new legal election markets. That was safe for the regulated Kalshi, but Polymarket may have suffered from sustained mainstream attention.
“What differentiates us as a company — there’s a number of other kind of unregulated, offshore companies — is that we went the legal route. We spent three years and a half with the CFTC to get regulated up front. We got approved by a bipartisan 5–0 vote, which is incredible,” Kalshi CEO and co-founder Tarek Mansour said in a May 2024 Bloomberg interview.
Possible cases against Polymarket
While illegal finance or gambling charges are why Coplan is currently under investigation, other cases could arise in the future.
Polymarket’s market settlement disputes could raise a consumer safety issue. For example, Polymarket offered a market on whether Israel would invade Lebanon in September 2024. Israel committed ground troops to Lebanon on Sept. 30, but the market resolved to “no ground invasion” after a vote of the market’s traders.
Vague settlement terms have raised traders’ ire in the past but, by themselves, are unlikely to result in an FBI investigation.
“It would be unusual for the FBI to enforce that [settlement complaint] criminally unless it was some sort of massive deceptive practice that really preys on people,” Ifrah said. For example, a scam targeting the elderly to write checks for non-existent or dysfunctional products. Polymarket’s occasional settlement disputes don’t approach that level of misconduct.
Before Bloomberg reported the FBI’s rationale for its raid, Coplan claimed that he was the victim of political retaliation. Whatever happens next, the raid could mark the beginning of a contentious legal saga.
