New York City-based Polymarket, a Delaware-registered entity operating as Blockratize, Inc., has been slapped with a $1.4 million penalty by the Commodity Futures Trading Commission (CFTC) for offering unregistered and illegal event-based binary options contracts. The CFTC order, filed and settled on January 3, 2022, alleges that Polymarket failed to obtain the necessary designation as a designated contract market (DCM) or registration as a swap execution facility (SEF).
The company operated an online platform, Polymarket.com, allowing users to trade binary options – essentially bets – on future events with “yes” or “no” outcomes. Examples of markets offered included predictions on the price of Ethereum, COVID-19 case counts, and the 2020 presidential election. Since its launch around June 2020, Polymarket hosted over 900 such “event markets,” utilizing blockchain-based smart contracts to facilitate trading and execution.
The CFTC determined these event markets constitute swaps under its jurisdiction, meaning they should have been offered on a registered exchange adhering to the Commodity Exchange Act (CEA) and CFTC regulations. By operating outside these guidelines, Polymarket violated federal law.
As part of the settlement, Polymarket is required to wind down all non-compliant markets on its platform and cease violating the CEA and CFTC regulations. The company received a reduced penalty due to its substantial cooperation with the CFTC’s investigation, according to the agency.
“All derivatives markets must operate within the bounds of the law regardless of the technology used, and particularly including those in the so-called decentralized finance or ‘DeFi’ space,” stated Acting Director of Enforcement Vincent McGonagle. The CFTC emphasizes the need for market participants to proactively engage with the agency to ensure market integrity and customer protection.
The investigation was led by Nina Ruvinsky, Joseph Platt, Heather Dasso, Allison Passman, Scott Williamson, and Robert Howell of the Division of Enforcement, with assistance from multiple other CFTC divisions. The CFTC urges the public to verify a company’s registration before investing, referencing existing customer protection warnings regarding unregistered binary options trading platforms.
Source: CFTC.gov
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