It was an unforgettable week in early November for Shayne Coplan, the 26-year-old founder of startup Polymarket. He received a call from Mar-a-Lago’s top-tier, made his first appearance on TV, and experienced an FBI raid on his New York City apartment. Coplan’s Polymarket, an online prediction market, has gained significant recognition in the past few months, especially for its accurate forecast of the presidential election results.
Shayne Coplan expressed satisfaction with his achievements and optimism about his company’s future in an interview with Fortune. However, his tone changed after the FBI confiscated his phone and laptop. He resorted to social media, labeling the FBI’s raid as baseless and politically motivated.
The legal proceedings are still in progress. Even though the FBI has declined to comment, Coplan and his attorneys have insisted that he has done nothing wrong. The exact reasons for the investigation are yet to be revealed. It is worth mentioning that Polymarket is currently under a federal consent decree, prohibiting it from offering certain prediction contracts to U.S. citizens.
A Political Giant and a VC Darling
On election night, the election results, reflected by Polymarket‘s graphs, brought joy to Donald Trump’s campaign team. As per the graphs, the spread between Trump and Kamala Harris was increasing. Polymarket’s prediction that Trump would win the election was more accurate than most polls, leading to widespread recognition and appreciation.
Despite being a new player, Polymarket has a centuries-old concept behind it. The platform allows users to bet on the outcome of various events, and the accuracy of the prediction increases with the crowd’s size. Over the past few months, the platform has gained oracle-like status in Trump’s world and among a growing cross-section of the political class.
The legality of election-related prediction markets, which have been banned in the U.S. for decades by the Commodities and Futures Trading Commission, has been questioned in recent years. Following a federal district court’s ruling that the ban did not apply to Kalshi, a Polymarket competitor, other prediction sites have started promoting their services more aggressively.
Accurate but Controversial Predictions
As Polymarket became central to election coverage, it also faced scrutiny. Critics pointed out that U.S. citizens were banned from using the platform, meaning the prediction data came from foreigners, not Americans. Questions about the site’s credibility were also raised due to the prevalence of wash trading.
Wash trading refers to a single person taking both sides of a trade to artificially inflate liquidity or try to manipulate the outcome. Before the election, Polymarket’s competitors approached reporters with data claiming that the site’s trading data was unreliable. Fortune conducted its own investigation and found that around 30% of Polymarket’s trades consisted of wash trading.
The implications of wash trading on Polymarket are unclear. According to Matthew Beville, a securities lawyer, the wash trading on Polymarket may reflect users trying to increase activity on the platform in hopes of receiving an “air drop.”
FBI Likely Waited Till After Election
The FBI investigation into Coplan and Polymarket raises questions about their future. Coplan turned to social media after the raid, accusing the Biden administration of targeting those linked to Trump. He received support from powerful figures in Trump-world, including Elon Musk.
The warrant upon which the FBI search was based is not yet public, and no indictment has been filed. It’s therefore impossible to know the exact allegations against Coplan and Polymarket. However, an anonymous crypto attorney told Fortune that Polymarket’s slapdash compliance measures had been expected to trigger federal action for months.
The attorney suggested that any charges would likely relate to allowing Americans to trade on the platform, violating a 2021 consent decree with the CFTC. The attorney compared Coplan’s social media behavior to that of FTX founder Sam Bankman-Fried, who was also indicted, labeling it defiant but foolish.
Ultimately, the response from Coplan and Polymarket could be seen as a gamble that regulators will back down due to Polymarket’s popularity with the incoming administration.
