Polymarket’s $10 million fraud scare tests whether growth outran compliance

In February, Polymarket became a victim of a fraud attempt that tried to steal no less than $10 million from its US app.

Shaney Coplan, Polymarket CEO, told employees to continue with their business expansion plans regardless of any subsequent sanctions, the Wall Street Journal reports. The $10 million figure refers to the amount thieves tried to steal, not money Polymarket actually lost.

The incident raises an overarching query for a company looking to fundraise at a valuation of about $21 billion and considering the possibility of going public: has Polymarket outpaced the compliance and market integrity protections that would generally be required of a regulated trading platform?

Stolen cards and an 80% rejection rate

The attack surfaced when payment processor Checkout.com flagged a surge in suspicious debit-card activity. Attackers linked stolen cards to thousands of new accounts, placed wagers, and tried to cash out to accounts they controlled. At the peak, more than 80% of deposits were rejected as fraudulent, compared with an industry norm of about 1%, the WSJ reported.

There were seven users responsible for most of the activity, one user making close to 4,000 deposits. As genuine withdrawals mounted, Polymarket changed its policy regarding withdrawals being sent back to the source of the funding. Some employees suggested that dropping the rule could lead to the increased probability of money laundering, while executives stated that other internal controls were sufficient.

According to the report, people who either worked or still are working at Polymarket said that Coplan kept pushing for continuous growth, regardless of any regulatory issues that may arise. This incident reached senior management in no time at all.

Andrew Clifford, who was in charge of compliance in the US, resigned after he published an internal report on the fraud issues. Justin Hertzberg, CEO of the US division, was fired along with other executives responsible for regulatory compliance and anti-money laundering policies. As per the information provided by sources with knowledge of the findings, a review by the law firm Sullivan & Cromwell concluded that Polymarket complied with regulations.

Polymarket says it has since strengthened its controls. The company added risk staff, including a former FBI agent, hired former Amazon finance chief Warren Jenson as its first CFO, limited the number of debit card users it could link, and brought in Riskified. It says fraud rates returned to industry norms by May.

An insider-trading problem that predates the fraud

The worry surrounding the fraud problem is in addition to another old issue that relates to market integrity, namely, trading on nonpublic information. According to a report published by The New York Times, more than 80 Polymarket accounts have been flagged for questionable trading across nearly 30 subjects.

As an example, 13 users bet $140,000 that Israel would launch a military action against Iran and ended up gaining more than $600,000.

The level of federal investigation has further increased. WIRED reported that CFTC Chairman Michael Selig authorized investigations concerning trades made by Polymarket, which are associated with Biden pardons, contracts with Iran, and Google’s search results. Furthermore, a US Special Forces soldier has been accused of using classified information to gain over $400,000 from bets related to Maduro.

Misuse of material nonpublic information, according to the CFTC, could result in an infraction of commodities law. Chainalysis, however, states that the transparency of blockchain allows law enforcement to follow suspicious operations and investigate wallet links.

Polymarket’s marketing practices have attracted scrutiny as well. A June 25 letter from Sens. John Curtis and Adam Schiff asked the CFTC to investigate allegations that Polymarket paid creators to stage trades on lookalike websites without clearly disclosing the payments. The Journal’s reporting detailed how fake bets were promoted online.

As Cryptopolitan reported, JPMorgan closed Polymarket’s bank account in August over regulatory concerns, while the New York City Council opened a probe into prediction-market marketing practices.

A sector big enough to matter

The stakes extend well beyond one company. Prediction markets generated $63.5 billion in volume in 2025, while Kalshi and Polymarket together handled $52.7 billion in the first 86 days of 2026, according to Artemis. Intercontinental Exchange’s Polymarket stake was valued at about $1.6 billion, representing roughly 22% of the company.

Several recurring fraudulent or prohibited practices appear in prediction markets. The important distinction is that some are confirmed enforcement cases, while others are suspicious activity or allegations under investigation.

Market design can spill into crypto itself. A Stanford-SMU study found that Polymarket’s five-minute Bitcoin contracts were associated with settlement-time spikes in spot order flow and sharp price reversals, with retail traders absorbing most losses during manipulated cycles.

The effect was far weaker in 15-minute contracts. That makes Polymarket’s compliance problems more than a company-specific concern. For banks, regulators and institutional traders, weak controls can raise the cost of entering the sector, fragment liquidity across jurisdictions and slow down the broader integration of prediction markets with crypto finance.