Overview
Two recent events illustrate that enforcing anti-fraud laws in the sports industry remains top of mind for federal prosecutors.
First, on Thursday, February 5, 2026, US Attorney Jay Clayton of the Southern District of New York (SDNY) (previously the head of the US Securities and Exchange Commission) said that he expected to bring prosecutions against prediction market participants.[1] During his remarks, Clayton explained that just "[b]ecause it's a prediction market doesn’t insulate you from fraud," and gave an example of fixing a game of golf via the prediction markets. This was a notable position to take from a top law enforcement official, as prediction markets have pitched themselves as an alternative to gambling and its perceived negative externalities. It is also rare for Department of Justice (DOJ) officials to make predictions without specific investigations in mind, suggesting that there may be enforcement actions coming in the near future.
Prediction markets, such as the popular Kalshi and Polymarket, generally operate through exchanges in which users buy and sell "yes-or-no" contracts whose prices reflect the users' aggregated estimates of how likely a future event is to occur (e.g., who will win the Super Bowl). Just last year, the CEO of Kalshi said "[i]f we are gambling, then I think you’re basically calling the entire financial market gambling."[2] Many states have disagreed with this stance, claiming that prediction markets are indeed a form of gambling under their respective state laws. New York Attorney General Letitia James even issued a consumer alert the week of February 2, 2026, warning that "unlicensed entities offering sports-related 'event contracts' over purported derivatives exchanges constitutes gambling in violation of New York law."[3]
Federal criminal statutes targeting fraud, however, do not rely on the regulatory distinctions that have dominated recent discussion of prediction markets. US wire fraud and money laundering statutes, for example, describe offenses of general application and have been applied to registered financial products and gaming enterprises alike. Regardless of whether prediction markets are ultimately classified as sportsbooks or exchanges, US Attorney Clayton's remarks suggest that the federal government intends to prosecute individuals and/or entities who exploit them to engage in fraudulent behavior. Sports associations, professional teams, and colleges and universities should be mindful both of these federal powers and the SDNY's particular interest and adjust their internal controls and safeguards to account for risks from individuals misusing both sportsbooks and prediction markets. This could involve the implementation of new surveillance and detection systems, particularly for platforms that rely on blockchain or other non-traditional systems.[4] Organizations and individuals should also be mindful that, given prediction markets' current characterization as exchanges, some misuse of prediction markets could be treated as insider trading.
Second, on Friday, February 6, 2026, a federal jury found Yasiel Puig, a former Major League Baseball outfielder and All-Star, guilty of obstructing justice and lying to federal officials during an investigation into an illegal gambling operation.[5] When federal agents met with Puig to discuss his involvement, Puig falsely stated that he never discussed gambling with a member of the illegal gambling ring, despite extensive evidence demonstrating he had done so numerous times.[6] Puig also lied to the federal agents about a cashiers' check he had sent to pay off gambling debts[7] and about his involvement in illegal gambling during his immigration application process.[8] Puig faces up to 10 years in federal prison for obstructing justice, and up to 5 years for his false statements.[9] He is scheduled to be sentenced on May 26, 2026.
Puig's conviction underscores federal authorities' aggressive pursuit of gambling investigations and matters involving sports integrity, signaling that even high‑profile figures like the former MLB All‑Star are not insulated from serious criminal exposure. The fact that Puig was convicted not for fixing games, but for obstructing justice and lying during the investigation, highlights that federal prosecutors are prepared to bring substantial charges based solely on misconduct arising out of the investigative process itself. For organizations operating in sports, gaming, or adjacent industries, the case serves as a reminder of the importance that the government places on truthfulness and cooperation—and that failures on those fronts can carry severe consequences.
Despite this aggressive stance, federal prosecutors have also signaled an increased willingness to cooperate with organizations under investigation by using non-prosecution agreements (NPAs) for companies that voluntarily disclose misconduct in accordance with the DOJ's recently revised Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP).[10] Notably, the DOJ's May 12, 2025 memorandum identifies "[f]raud that victimizes U.S. investors, individuals, and markets" as a priority enforcement area.[11] Even in these high-priority areas, however, federal prosecutors have emphasized the importance of reaching prompt, fair resolutions through NPAs where appropriate. During his comments, US Attorney Clayton explained this shift by stating "[o]ur approach is going to be: let’s get an NPA signed as quickly as possible that calls for continued cooperation."[12] His stated aim "is to get the bad people out of, hopefully, the good companies, and to do that as quickly as possible."[13] US Attorney Clayton also indicated that prosecutors would try to address the broader business concerns of companies who are being investigated, explaining that in exchange for NPAs, "we tell the market, 'This is a good company, they’re getting to the bottom of it.' They’re not going to get crushed from a financial point of view."[14]
US Attorney Clayton's comments are a continuation of the SDNY's multi-year effort across administrations of different political parties to strongly encourage corporate cooperation in combatting financial crime. Over the last few years, the DOJ has publicized NPAs and declinations resulting from proactive measures to identify and report abuse in similar contexts (i.e., sanctions and related economic countermeasure investigations). Clayton's recent statements may signal that the DOJ is preparing to provide similar precedent in the area of more traditional financial crime. Organizations engaged in internal review of potentially illegal conduct must carefully weigh the risks inherent in engagement with any component of the DOJ, even in pursuit of an NPA. Clayton's remarks, however, suggest that the door remains open in those cases where proactive engagement is the right approach.
Organizations should evaluate whether their existing internal controls adequately address the risks posed by prediction markets. We recommend enhancing monitoring mechanisms and updating policies governing employee wagering activity to ensure they appropriately and explicitly include prediction markets within their scope. Institutions may also benefit from conducting training regarding prediction markets. We also recommend preparing an action plan for engaging with federal prosecutors should an investigation ever occur; conducting thorough internal investigations in response to credible internal reports of misconduct; and giving due consideration to whether your client should avail itself of the Criminal Division's Voluntary Disclosure Program. Steptoe's Sports Integrity Team advises clients in this area and regularly provides analysis and updates regarding the federal enforcement landscape. For more information, please contact any of the Team members.
[1] Jessica Corso, SDNY Chief Says Office Has Eye On Prediction Markets, Law360 (Feb. 5, 2026), https://www.law360.com/whitecollar/articles/2438607.
[2] David Purdum and Shwetha Surendran, How Kalshi and Prediction Markets are Disrupting Sports Betting, ESPN (June 2, 2025), https://www.espn.com/espn/betting/story/_/id/45377686/kalshi-prediction-markets-disrupt-sports-betting
[3] Alert, Office of the New York State Attorney General, Industry Alert: Conducting, Advertising, and Promoting Unlicensed Gambling through “Event Contracts” May Subject So-Called “Prediction Markets” to Civil and Criminal Penalties (Feb. 2, 2026), https://ag.ny.gov/sites/default/files/2026-02/prediction-market-industry-alert-oag-1.30.26-final.pdf. See also Alert, Office of the New York State Attorney General, Consumer Alert and Industry Alert: Attorney General James Warns New Yorkers of Potential Harms of Sports Betting and Prediction Markets (Feb. 2, 2026), https://ag.ny.gov/press-release/2026/consumer-alert-and-industry-alert-attorney-general-james-warns-new-yorkers.
[4] See Aislinn Keely, Prediction Markets Expand Wall St. Cops’ Insider Trading Beat, Law360 (Feb. 6, 2026), https://www.law360.com/whitecollar/articles/2438793.
[5] Press Release, U.S. Attorney’s Office, Central District of California, Former MLB Player Found Guilty of Obstructing Justice and Lying to Federal Officials Investigating Illegal Sports Gambling Ring (Feb. 6, 2026), https://www.justice.gov/usao-cdca/pr/former-mlb-player-found-guilty-obstructing-justice-and-lying-federal-officials.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] U.S. Dep’t of Just., Crim. Div., Corporate Enforcement and Voluntary Self-Disclosure Policy (updated May 12, 2025).
[11] Memorandum from Matthew R. Galeotti, Head of the Crim. Div., U.S. Dep’t of Just., to All Criminal Division Personnel, Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime (May 12, 2025).
[12] Chris Prentice, US Attorney Says Office Will Not Prosecute Companies That Cooperate in Criminal Probes, Reuters (Feb. 5, 2026), https://www.reuters.com/legal/government/us-attorney-says-it-will-not-prosecute-companies-that-cooperate-criminal-2026-02-05/.
[13] Jessica Corso, SDNY Chief Says Office Has Eye On Prediction Markets, Law360 (Feb. 5, 2026), https://www.law360.com/whitecollar/articles/2438607.
[14] Id.
