The Pentagon bans prediction market bets using classified military information

U.S. Defense Secretary Pete Hegseth issued a directive last week prohibiting military personnel and Pentagon civilians from using nonpublic information to place bets on prediction market platforms like Polymarket and Kalshi. The measure, published in an October 20 memorandum and publicly disclosed on October 22 by CBS News, puts at legal risk both bets placed on decentralized platforms and traditional betting sites.

The justification is clear and direct: "Our enemies watch movements in these markets," Hegseth wrote, according to the text obtained by CBS News. "When an American Service member, intelligence professional, or other Department civilian engages in a financial transaction on a military outcome, they create a signal. That signal can be aggregated, correlated, and exploited by hostile foreign intelligence services to anticipate our movements, targets, and timing."

Beyond operational security, the memorandum also cites the risk of conflicts of interest: "Beyond operational security, financial stakes can warp judgment. A logistician with money riding on a strike date has an interest in that date. An analyst with a position on an outcome has an interest in the outcome."

The prohibition applies to all financial platforms, including traditional betting sites and prediction markets such as Polymarket and Kalshi. It covers both classified and unclassified but nonpublic information. Violations can result in administrative punishment and criminal charges under the Uniform Code of Military Justice (UCMJ) or federal law.

The case that triggered the measure involves Master Sgt. Gannon Ken Van Dyke, 38, of the Arizona National Guard, already charged with profiting over $400,000 from a single bet on a military event on Polymarket. The case, which is already in judicial proceedings, demonstrated how decentralized betting platforms have been used to speculate based on privileged information about military operations.

Hegseth's directive comes at a time when the CFTC (Commodity Futures Trading Commission) has been increasing its scrutiny of prediction markets. In February 2026, the CFTC issued an advisory reinforcing that platforms like KalshiEX are regulated Designated Contract Markets (DCMs) and that the CFTC itself has primary enforcement jurisdiction over illegal activities, including insider trading and market manipulation. CFTC Division of Enforcement Director David I. Miller identified insider trading on prediction markets as one of his five enforcement priorities.

Hegseth's memorandum adds to a series of measures from the Trump administration that place regulatory pressure on prediction markets. In September 2026, The New York Times reported that the CFTC had scaled back its enforcement actions under the Trump administration, raising concerns about the future of regulation in this sector. Hegseth's directive, however, appears to signal a change in tone: while the CFTC may be retreating from enforcement actions, the Department of Defense is sending a clear signal that it will not tolerate the use of privileged information for speculation on prediction markets.

The measure also raises questions about the interaction between decentralized platforms and U.S. legislation. Polymarket operates on a blockchain, which raises questions about the practical enforceability of the directive — although the Pentagon's prohibition applies only to military and Defense Department civilians, not to general users of the platforms.

A question remains: will the Pentagon's ban signal a broader wave of government restrictions on prediction markets, or will it be an isolated measure focused solely on military security?

Sources: CBS News, Cointelegraph, Associated Press

✓ Independent sources cross-checked and verified before publishing