Defense Secretary Pete Hegseth has issued a strict directive prohibiting military personnel from using nonpublic information to place bets on prediction markets. The memo, dated October 20, warns that such financial transactions can compromise military operations and endanger the lives of service members by revealing sensitive information to hostile foreign intelligence services.
The directive was sent to senior Pentagon leadership, Combatant Command leaders, and Defense Department field activity directors. Hegseth emphasized that the prohibition applies to all financial platforms, including traditional betting services and emerging prediction markets like Polymarket and Kalshi. The ban covers any financial transaction informed by nonpublic information, regardless of whether that information is classified or unclassified.
Operational Security Risks
Hegseth’s memo highlights the specific dangers of allowing military personnel to engage in financial speculation based on their professional knowledge. The subject line of the memo, “Do Not Compromise Military Operations for Personal Financial Gain,” underscores the administration’s focus on preventing leaks through financial channels.
According to the memo, enemies actively monitor movements in these markets. When a service member or defense civilian engages in a financial transaction regarding a military outcome, they create a signal. This signal can be aggregated, correlated, and exploited by hostile foreign intelligence services to anticipate American movements, targets, and timing. The memo states that the lives of service members often depend on the enemy remaining unaware of upcoming operations.
Beyond operational security, Hegseth noted that financial stakes can warp judgment. A logistician with money riding on a specific strike date has a vested interest in that date occurring. Similarly, an analyst with a position on a particular outcome may develop a bias toward that result. The memo argues that the military force must protect its members, not expose them to the enemy for personal gain.
Recent Incidents and Enforcement
The directive follows several high-profile incidents involving insider trading on prediction platforms. In April, a US Army soldier was arrested and charged with using confidential information to make $410,000 in bets on Polymarket regarding the timing of the military’s capture of Venezuelan President Nicolás Maduro. An August report by the Anti-Corruption Data Collective identified 152 suspicious wallets that placed longshot bets on military and defense markets, winning a combined $8 million.
Additional reports indicate that new accounts on Polymarket made highly specific, well-timed bets on a US-Iran ceasefire just before President Donald Trump announced the agreement in April. These bets resulted in hundreds of thousands of dollars in profits for the new customers. In another case, a Trump teleprompter aide reportedly made $100,000 on Kalshi by betting on the content of Trump’s prepared remarks.
Hegseth’s memo warns that violations may result in administrative, disciplinary, and criminal action under the Uniform Code of Military Justice and applicable federal law. While Polymarket and Kalshi both prohibit insider trading, the memo suggests that criminal charges will serve as a more significant deterrent than platform bans.
The Trump administration has previously warned staff against using private information to trade on prediction markets. The administration is also actively trying to prevent state governments from regulating these markets, arguing that state laws are preempted by the Commodity Futures Trading Commission’s exclusive jurisdiction. Courts have reached different conclusions on this issue, and state governments are seeking Supreme Court review to uphold their right to impose restrictions on prediction market gambling.
Source: Ars Technica
